World should not ignore recession signals - GulfToday

World should not ignore recession signals

Stock Markets

The photo has been used for illustrative purposes.

A German GDP contraction, weak Chinese industrial output and an inversion of the US yield curve all seem to strengthen fears of a global slowdown and the world community needs to take a serious note of it.

Also highlighting the seriousness of the issue is the fact that stock markets on both sides of the Atlantic witnessed hefty losses on Wednesday.

The US Treasury yield curve inverted for the first time since 2007. A curve inversion, when short-dated bond yields are higher more than their longer-dated counterparts, is seen as a reliable warning for an impending recession.

The US curve has inverted before each recession in the past 50 years. It offered a false signal just once in that time.

The glaring signal of impending trouble has come from Germany where the economy shrank by 0.1 per cent in the second quarter as troubles in the auto industry held back the largest member of the 19-country Euro currency union.

The weak performance has darkened prospects for the entire Euro zone, where the European Central Bank is poised to add more monetary stimulus at its next meeting.

It has also raised the possibility that Germany could enter a technical recession by posting another consecutive quarter of falling output.

Germany’s economy is facing headwinds as its auto industry, a key employer and pillar of growth, faces challenges adjusting to tougher emissions standards in Europe and China and to technological change.

Uncertainty over the terms of Britain’s planned exit from the European Union has also weighed on confidence more generally.

British Prime Minister Boris Johnson has declared that his country will leave the EU on Oct. 31, with or without a divorce deal.

The euro zone’s GDP barely grew in the second quarter of 2019 as economies across the bloc lost steam.

On Tuesday, the dollar gained dramatically against the yen after US President Donald Trump backed off his Sept.1 deadline for imposing 10% tariffs on remaining Chinese imports, delaying duties on cellphones, laptops and other consumer goods.

Those gains were reversed overnight, however, as scepticism about the progress began to weigh.

Singapore has already slashed its full-year economic growth forecast. The government cut its forecast range for gross domestic product (GDP) in Singapore — often seen as a bellwether for global growth because international trade dwarfs its domestic economy - to zero to 1% from its previous 1.5%-2.5% projection.

Just recently, the International Monetary Fund (IMF) had indicated that global trade expanded by merely 0.5% in the first quarter of 2019, marking the slowest year-on-year pace of growth since 2012.

It had also signaled that a more significant slowdown is possible.

IMF Chief Economist Gita Gopinath stated that she saw significant downside risks for global growth going forward, including escalating trade wars.

With the IMF lowering its forecast for global growth this year and the next, the world community should address more seriously prevailing concerns caused by factors such as additional US-China tariffs, technology tensions and a disorderly Brexit.

More and more businesses are worried globally about the effect of increasing protectionism on exports and production. The deterioration in the global outlook has pushed central banks to cut interest rates and consider unconventional stimulus to shield their economies.

In a hugely knitted world, coordinated actions suit best. Economic uncertainty can add to social unrest and hence the world community needs to wake up and act, before it is too late.

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