There is a low likelihood of an economic recession in the US and the EU this year, but a downturn could happen in 2020 and 2021.
These were the broad conclusions given by Yves Nosbusch, Chief Economist at BGL BNP Paribas speaking during the conference’s second afternoon. “It is important that things stabilise on the trade front,” he said, adding that related geopolitical arguments are “a critical determinant.”
Economic history suggests the world’s leading economies are due to experience recession as it has been ten years since the last time since growth went into reverse. Yet there are still many unknowns, as economists have still not fully understood the long term implications of central banks’ quantitative easing (QE) policies.
Manufacturing purchasing managers indices have “slowed significantly” in the US and eurozone Mr Nosbusch noted, and traditionally this is a strong leading indicator of a recession. Yet overall these figures give a “mixed picture” and the figures “seem to be stabilising”, he added. Moreover figures for the services sector appear to be relatively healthy.
In the past, the yield curve (the relationship between the interest rates offered by bonds of differing maturity dates) has been a reliable pointer. On the face of it, the data suggests a recession is looming, but Mr Nosbusch commented that QE has probably changed how we should view these figures, which might actually be somewhat “reassuring”.
On the other hand, unemployment claims have started to rise in the US and this is normally a bad sign. Also, credit market data suggests we are nearing the end of the economic cycle. “All together, we see a deterioration in many leading indicators, but so far they are not flashing red,” Mr Nosbusch said.
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(Image source: ALFI Funds)