Saturday , 23 September 2017


The Global Economy Is On the Brink of Recession – Here's Why

The Global Economy is on the brink of a recession with 58% of 29 OECD countries experiencing business cycle contractions [although] the U.S. seems to be plodding along despite woes outside her borders . Whilst global recession is certainly an alarm bell for the U.S economy, it is just that – a shot across the bows and not a direct hit. [As such,] there is no reason to hit any panic buttons…[yet other than] to monitor the U.S. recession models ever more closely for any signs of weakness. [Let me explain why this is the case.] Words: 601

So says Dwaine Van Vuuren (http://recessionalert.com) in edited excerpts from his article* entitled On the brink of Global Recession.

Lorimer Wilson, editor of www.FinancialArticleSummariesToday.com (A site for sore eyes and inquisitive minds) and www.munKNEE.com (Your Key to Making Money!), has edited the article below for length and clarity – see Editor’s Note at the bottom of the page. This paragraph must be included in any article re-posting to avoid copyright infringement.

Van Vuuren goes on to say, in part:

The chart below shows OECD defined global contractions (grey shaded areas) together with the percentage of 29 OECD member countries experiencing slowdowns. It is evident that whenever 50% or more of countries enter contraction (red dotted line) that the odds of global recession are very high.

The blue lines show  NBER recessions for the U.S and we see that whilst every U.S recession occurred during an OECD-defined global recession, the converse is not always true….The question that comes to mind, [however,] is [whether] the world economies are plunging, muddling along or making soft landings. We need to take the above chart in that context. If 58% of countries are in recession and world economies are on steep downward trajectories then we have cause for concern as the odds of the U.S avoiding contagion will be slim indeed.

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To find out how the world economies are doing, we took import/export trade data from 85 countries around the world (to calculate extent of world trade volume) and coupled this with industrial output to come up with a global 2-factor “economic growth index” shown below. The data is obtained from the CPB world trade database containing foreign trade value series of 23 OECD countries  and around 60 emerging economies. Those 60 emerging economies cover approximately 90% of foreign trade of all emerging economies. With the almost 85 countries in the database, coverage of total world trade value is around 97%.

This growth series is obviously weighted according to size of countries exports/imports (for trade volume)  and size of industrial base (for production) and therefore is less synchronized with the OECD global recession periods than the % of countries in recession (which acts more like a diffusion index). It is however telling us that:

  • some large countries (like the U.S and China) are propping up the world economy output despite a high percentage of OECD countries in recession and that
  • economic growth is “bouncing along a bottom” rather than plunging precariously over a cliff.
  • In fact, the world output growth currently looks very similar to the US Coincident Economic growth model [below] taken from our “NBER Recession Model of last resort

Conclusion

The conclusion is that:

  • the world economies are in a precarious state but many are making soft landings and the % of countries in recession seems to have peaked.
  • there is cause for concern for contagion to the U.S which means we must watch world economy status and the U.S recession models from our Recession Forecast Ensemble even closer for faintest signs of weakness.

A fall into recession in the U.S is likely to be a very rapid one if it occurs against the current world backdrop. Getting out the stock market too soon can be very costly, as has been the case over the last 13 months since ECRI’s first recession call. For this reason we are not hitting any panic buttons on our side just yet.

*http://recessionalert.com/on-the-brink-of-global-recession/

 Editor’s Note: The above post may have been edited ([ ]), abridged (…), and reformatted (including the title, some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. The article’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article.

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