There is now a fair amount of talk about recessions and rumours of recessions. The German Central Bank recently warned that Germany may be about to enter a recession and of course there is all the talk about the inverted yield curve as a signal of recession. The current disruptions in world trade are a factor in slower growth particularly in China and as talk of recession mounts, one might expect that there will be an effect on investor and consumer expectations that indeed makes a recession a self-fulfilling prophecy. Indeed, the August 24thEconomist noted that “The onset of a downturn is as much a matter of mood as of money”.
The most recent Consensus Forecast Major Economies out of FocusEconomics(September 2019) is not ready to call a recession but notes that: “Growth is set to ease this year, due largely to weaker momentum in developed economies and China. However, tight labor markets and more accommodative monetary policy should provide some support. A further escalation of trade tensions, particularly between the U.S. and China, is the key downside risk.” At the same time, the outlook for growth is weaker for Canada and Europe with Canada now expected to see real GDP growth in 2019 of 1.4 percent and the Euro Area 1.1 percent with the U.K. and Japan clocking in at 1.2 and 0.9 percent respectively. Canada is expected to see continued hits to its exports as well as the effect of pipeline delays and oil production cuts as elements of its slowdown. The major risk factors for the Canadian economy are U.S.-China trade tensions, volatile energy prices (oil) and continued elevated household debt.
The irony in all of this gloom is that one of the causes has been the behaviour of U.S. President Donald Trump’s administration in disrupting the world economy via trade disputes. Interestingly enough, the U.S. is such a large wealthy market that combined with low interest rates and rather large government deficits it is expected to see growth ease but is still expected to come in at about 2.4 percent. In other words, the rest of the world is being hit much harder that the United States as a result of all the economic disruption. The ultimate irony is that the United States may escape a recession that its behaviour may indeed have helped trigger it in other parts of the world.
