IHS Markit chief economist Nariman Behravesh said slowing global economic growth puts the odds of a recession at three-to-one with a likelihood of a worldwide recession in 2020 at 50-50.
Global economic growth will slow to 2.9 percent, with the growth trajectory for trade experiencing “even more softening” this year after falling from 7 percent growth in 2017 to 5 percent in 2018. Global GDP expanded at a 3.2 percent clip in 2018; Behravesh expects growth to shrink 2.8 percent in 2020.
“Bottom line, is growth slowing? Absolutely,” Behravesh said. “Recession this year? No. Recession next year? Maybe.”
The likelihood of a global recession in 2020 is increased by factors including downward pressure from China’s slowing economy, the uncertainty over the outcome of the US-China trade talks, and manufacturing recessions in Europe, China, and Japan, he said. Yet the strength of the US economy — especially in the manufacturing, consumer spending, and service sectors — could help keep a recession at bay, he said.
“There are still lots of risks, economic risks, policy risks,” he added. “But we think this expansion still has legs,” he said, noting that if recession does not hit before July, it will be the longest expansion in recorded history.
Shifting policies in China
Chinese economic growth has slowed from 6.8 percent last year to 6.3 percent in 2019 and will be about 6 percent in 2020, he said. That’s partly because of a manufacturing recession as the Chinese government swings back and forth between a policy of trying to reduce debt levels and one of stoking economic growth, Behravesh said.
President Donald Trump’s protectionist efforts have “done a lot of damage,” but not as much as expected, he said. The US economy, after growing at a rate of about 2.9 percent in 2018 as a result of the tax cuts enacted in 2017, will slip to 2.4 percent growth in 2019 and 2 percent growth in 2020, he said.
The US economy has a solid foundation, however, and could avoid a recession as a result of strong consumer spending and the fact that, unlike other countries, the manufacturing sector is growing, he said. The strength of the US service sector also helps, he said.
The renegotiated North American Free Trade Agreement — known as the United States-Mexico-Canada Agreement — “didn’t really move the ball” because it is not that different from its predecessor, he said. The main change is in regulations that determine the amount of foreign content in some products that could especially affect the auto industry, and raise costs by 5 percent, Behravesh said.
The weak European economy could have a much more significant impact on global trade, he said. European manufacturing is in recession, and European economies are more vulnerable to what is happening elsewhere in the world than in the US economy because they are more reliant on exports, Behravesh said. Exports account for about 40 percent of Europe’s GDP, compared with 15 percent in the US, Behravesh said.