“GLOBAL RECESSION WATCH”
Nations around the world tapped – and many all but maxed out – their recession battling ammo between the Global Financial Crisis of the late aughts and the Sovereign Debt Crisis which followed. The few that had solid recoveries remained bright shining stars in an otherwise still complex economic environment.
And some – some squandered their luck.
Enter Donald J. Trump. Rather than putting together an economic stimulus plan that would benefit all, tax cuts were given by whopping margins away to the very wealthy and corporations, literally busting our budgets – and with that – any traditional ammo left to do battle with the next recession.
Now, the economic impact of the coronavirus looms as a rare Black Swan economic shock hanging over the global economy. The potential negative impact of COVID-19 on businesses around the world can not be overstated.
This is a dangerous time for the global economy.
GLOBAL RECESSION WATCH
Finance ministers say everything is under control, but newbie UK Chancellor Rishi Sunak is skipping this weekend’s G20 meeting to put out domestic fires — so much for “Global Britain” — and so is China, because of coronavirus. Contradicting ministers, HSBC cut its 2020 global growth forecast from 2.5 percent to 2.3 percent, two-thirds of both manufacturing CEOs and shipping CEOs think a recession is likely in 2020, and MIT scientists say their model also points to recession. Apple isn’t the only big company that will miss its targets this quarter. “It’s been a wild ride. There was a boost in confidence when Trump de-escalated the trade war, and a few weeks later the Coronavirus has halted a sizable amount of manufacturing in China,” Rajesh Kalidindi, CEO of LevaData told me.
International Monetary Fund chief Kristalina Georgieva has suggested “synchronized or, even better, coordinated measures to protect the world economy.” Her latest rescue mission is to Lebanon, which had its worst day on record in bond markets this week. The context for all that is global debt, which is at its highest-ever levels: $253 trillion. Nothing to see here, folks!
Don’t expect central banks to ride to the rescue: Today’s central banks are not like those of a decade ago. There’s not a lot of ammunition or trust left…
Here’s a run-down of the economies at a recession and slow-down tipping points:
CHINA: China’s overall debt was at 310 percent of GDP, before coronavirus struck and growth will likely fall below 5 percent in 2020. China’s central bank already cut its medium-term lending rate. China car sales were down 92 percent in the first half of February.
Who matters: China’s debt-laden companies.
What’s their baggage: Coronavirus.
UNITED STATES: Consumer confidence is holding up, but industrial output declined in four of the last five months and consumers are close to maxed out: half of Americans have less than $1,000 in accessible savings, but much more student or credit card debt. The trillion-dollar U.S. budget deficit leaves little room for stimulus…
Who matters: Jerome Powell (interest rates) and President Trump (trade wars)
What’s their baggage: The shadow of the 2020 presidential election, coronavirus and Boeing’s 737-MAX problem.
JAPAN: Japan’s economy tanked in Q4 2019 after a delayed sales tax increase from 8 to 10 percent was finally implemented.
Who matters: Prime Minister Shinzo Abe, who has ordered an $82 billion stimulus package
What’s their baggage: The West’s biggest debt burden, central bank out of ammunition, and an inexorably shrinking and aging population
GERMANY: Germany’s latest reported GDP figure is zero growth (Q4 2019), but the government somehow revised its growth forecast up this week to 1.1 percent. European Central Bank supremo Chrsitine Lagarde has begged Berlin to spend more.
Who matters: Angela Merkel’s Social Democrat governing partners
What’s their baggage: Allergy to stimulus spending (a constitutional rule all but forces a budget surplus) and threat of Trump auto tariffs
INDIA: The risk is a persistent “a severe growth slowdown,” according to International Institute of Finance’s Sergi Lanau. Read his full piece.
Who matters: Finance minister Nirmala Sitharaman
What’s their baggage: High public debt and stressed shadow banks
U.K.: Europe is facing its lowest growth since 2013, and Brexit is its big risk factor, in particular for the U.K. Half of British firms expect recession.
Who matters: New U.K. chancellor Rishi Sunak, a hedge fund whiz
What’s their baggage: Brexit
ITALY: When is Italy not on the brink of recession? The economy is smaller than it was in 2010 and average growth in the last two years is zero.
Who matters: Center-left Finance Minister Roberto Gualtieri (managing $2.3 trillion in public debt) and fragile Italian banks.
What’s their baggage: No room for fiscal stimulus and the banks have too much bad debt, neither of which the EU can afford to bail out.
THIS WEEK’S CORONAVIRUS RED FLAGS: The latest hotspot keeps shifting: now South Korea. At the virus epicenter, China has twice this week changed its coronavirus diagnosis definition, causing infection numbers to drop. Yet the Beijing district that’s home to Chinese government’s central headquarters, has increased its movement restrictions and virus testing: hmmmm…
Emphasis in red ours