A real threat of recession

22 Feb 2016
Up in smoke: China's factory output is depressingly low. Credit: Jonathan Kos-Read

Up in smoke: China's factory output is depressingly low. Credit: Jonathan Kos-Read

COMMENT: The economic signals are increasingly suggesting that the global economy is headed for a recession similar to that experienced in 2001: the economic fundamentals are not very positive and suggest lower growth in the US, the EU and Asia, by Ben Hackett.

Any hope that the emerging markets might grow sufficiently to prevent a recession is rapidly being discounted by the international financial institutions. Chinese factory output has slowed for 10 straight months and surveys across Asia indicate that industries are struggling with weak demand and little help from state stimulus. China’s economy grew by only 6.9% in 2015 and the World Bank expects no more than 6.7% this year and that may be optimistic.

Additionally, the OECD has revised its GDP forecasts down again. World GDP is now projected at only 3% in 2016 and 2% in the US. There is declining output in the latter, which does not bode well, and the forecast for US imports in the North America Global Port Tracker projects an actual decline in volumes for 2016.

Europe, specifically the Eurozone, continues to languish in the doldrums with no real economic growth. There is a real danger here of deflation; GDP growth rate for 2016 has been cut to 1.7% by the European Commission.  There is an expectation that the consumers will support growth but that flies in the face of increased savings and seems wholly unrealistic.

Meanwhile, declining commodity prices, not just for crude oil, but for most major bulk commodities, point to an expectation that the slowdown will gather momentum into 2016. 

If there is a recession it will be felt everywhere, import demand in the Western Hemisphere markets is just not there and growth rates in Asia appear to be very weak with output down and export trade volumes negative - China is the “sick man of Asia”.

With slower growth everywhere can the downward slide be halted? All the economies need a stimulus to encourage consumer spending and to increase business expansion, but the will may not be there and as a result the risk of a recession is most definitely increasing.