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Watch the recession: The 5 largest economies of the world are on the brink



"The most important thing is that the German economy is balancing on the brink of recession," said Andrew Kenningham, Europe's chief economist at Capital Economics.

Mexico has just avoided a recession – usually defined as two consecutive quarters of contraction – and its economy is expected to remain weak this year. Data suggests that Brazil fell into recession in the second quarter.
Germany, Great Britain, Italy, Brazil and Mexico are among the 20 largest economies in the world. Singapore and Hong Kong, which are smaller but still serve as important centers for finance and trade, also suffer.

While growth has been slowed down in each country by a specific cocktail of factors, the global decline in production and the sharp decline in business confidence have exacerbated the situation.

China's huge economy is growing at the slowest pace in almost thirty years, as the country is waging a protracted trade war with the United States, which will impose new taxes on Chinese exports in September and December.

"The common feature is a weak global environment," said Neil Shearing, group's chief economist at Capital Economics.

The International Monetary Fund last month lowered its forecast of global growth this year to 3.2%, which is the slowest expansion rate since 2009. He also lowered his expectations for 2020 to 3.5%.
Investors are increasingly concerned. The bond market is flashing warningly, and over a third of asset managers surveyed by Bank of America are expecting a global recession in the next 12 months.

5 threatened economies

Germany relies heavily on exporters who sell a disproportionate amount of goods to China and the United States. Lackluster global car sales have also hit car makers.

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

German car supplier near Berlin in July.
Although fears of chaotic Brexit help to drag the German economy, this problem causes the most pain in the UK, where the economy is shrinking for the first time since 2012.
The British economy should bounce back 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 trade defense agreement on October 31, a recession would probably be inevitable.
In Italy, poor productivity, high youth unemployment, huge debt and political turmoil are guilty of constant malaise.

Investments have fallen in Mexico and the service sector in the country is under pressure. Brazil, the largest economy in Latin America, suffers from poor industrial production and high unemployment. The data that will be provided in the coming weeks will confirm whether it has fallen into recession.

Storm clouds

Shearing claims that part of the darkness and fate is unreasonable. He says that at the global level, companies' spending on assets such as equipment has stabilized. The labor market is resilient.

"While there are extreme weaknesses in the global economy – especially in production – other parts are doing relatively well," he said. "All this is in line with our view that global growth is slowing down rather than collapsing.

The main iron ore mine in northern Brazil.

However, it also indicates three major risks.

The first is the trade war. If Beijing and Washington continue to increase tensions, business confidence may fall. The International Monetary Fund has warned that growth in 2020 will be reduced by half a percentage point if the dispute continues.

Another major risk is the inaction of central banks, which causes a negative reaction on financial markets that affects the real economy. Interest rate cuts by the US Federal Reserve last month for the first time in 11 years, and the European Central Bank suggested that it release more stimulus in September. Pressure is increasing on China to lower its main interest rate for the first time in four years.

Other central banks from India to Thailand have cut rates and further cuts are expected.

The last risk is that the global service sector, which supports growth, is beginning to reflect a downturn in production.


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