5 Big Economies are at Risk of Recession

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NEW YORK, NY - AUGUST 13: Traders and financial professionals work on the floor of the NYSE at the opening bell on August 13, 2019 - Photo by Drew Angerer/Getty Images)

It won’t take much to push them over the edge.

The British economy shrunk in the second quarter, and growth flat lined in Italy. Data published Wednesday show Germany’s economy, the world’s fourth largest, contracted in the three months to June.

“The bottom line is that the German economy is teetering on the edge of recession,” said Andrew Kenningham, chief Europe economist at Capital Economics.

Mexico just dodged a recession— usually defined as two consecutive quarters of contraction — and its economy is expected to remain weak this year. And data suggest that Brazil slipped into recession in the second quarter.

Germany, Britain, Italy, Brazil and Mexico each rank among the world’s largest 20 economies.  Singapore and Hong Kong, which are smaller but still serve as vital hubs for finance and trade, are also suffering.

The International Monetary Fund last month cut its forecast for global growth this year to 3.2%, the weakest rate of expansion since 2009. It also downgraded its expectations for 2020 to 3.5%.

Investors are increasingly worried. The bond market is flashing warning signs and more than a third of asset managers surveyed by Bank of America expect a global recession in the next 12 months.

Germany relies heavily on exporters that sell a disproportionate amount of goods to China and the United States. Lackluster global auto sales have also hit its carmakers.

“Today’s GDP report definitely marks the end of a golden decade for the German economy,” said Carsten Brzeski, chief economist in Germany at the Dutch bank ING.

While fears of a chaotic Brexit are helping to drag down the German economy, that issue is causing the most pain in the United Kingdom, where the economy is shrinking for the first time since 2012.

The British economy should rebound in the third quarter and avoid an immediate recession. But if Prime Minister Boris Johnson pulls the country out of the European Union without a deal to protect trade on October 31, a recession would likely be unavoidable.

If the trade war between Beijing and Washington continue to ratchet tensions higher, business confidence could plummet. The International Monetary Fund has warned that growth in 2020 would be slashed by half a percentage point if the dispute escalates further.

Another big risk is that central banks fail to act, causing a negative reaction in financial markets that feeds through to the real economy. The US Federal Reserve cut rates last month for the first time in 11 years, and the European Central Bank has hinted that it will unleash more stimulus in September. Pressure is building on China to cut its main interest rate for the first time in four years.

Other central banks from India to Thailand have slashed rates, and more cuts are expected.

Source: CNN News

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