Thursday, August 15, 2019

U.S. recession, Part 2 - We're not alone!.

The Washington Post reports that 9 key countries are on the verge of recession, driving fears the U.S. could follow.

“Nine major economies around the world are in recession or on the verge of one, raising fears that a global economic slowdown could help tip the United States into an economic contraction as well.” They are:

Germany: The German economy shrank 0.1 percent in the second quarter after anemic 0.4 percent growth at the start of the year. Two consecutive quarters of negative growth is the technical definition of a recession, and Germany is nearly there, sparking fears of an official recession by the end of the year. Germany is heavily reliant on manufacturing cars and other industrial goods to power its economy. Most of the world — including the United States — is currently experiencing a manufacturing recession. So far, the famously austere German government has been reluctant to spend to stimulate growth.

United Kingdom: The U.K. story is similar to Germany’s: Growth contracted 0.2 percent in the second quarter after a weak 0.5 percent performance in the first quarter. On top of manufacturing woes, the United Kingdom has seen an investment slump, largely because of uncertainty over Brexit. If Britain leaves the European Union in October without a deal — a “hard Brexit” — the nation is widely expected to enter a recession.

Italy: The eurozone’s third-largest economy has struggled for years and entered a recession last year. And 2019 hasn’t been much better. Growth in the second quarter was just 0.2 percent, and there’s concern that will turn negative as Italy sells some goods to Germany, which is in worse shape. Italy also struggles from continuing political crises that make additional economic aid from the government difficult. Italian Prime Minister Giuseppe Conte is facing a no-confidence vote in his country’s Senate later this month and may have to resign, and Italy’s debt is one of the highest in the world.

Mexico: The southern U.S. neighbor has also been a target of Trump’s trade and immigration battles, which appear to be taking a greater toll than many expected. Mexico’s economy contracted 0.2 percent at the start of the year and barely escaped an official recession in the second quarter by growing just 0.1 percent. Mexico has also suffered decline in business investment and confidence as companies fear leftist President Andrés Manuel López Obrador will nationalize industries.

Brazil: The largest economy in South America shrank 0.2 percent in the first quarter and is widely expected to show negative growth again in the second quarter when the official data comes out at the end of August, marking a recession. Brazil has struggled to sell goods overseas and also has seen sluggish demand at home. Some thought Brazil would benefit as China sought to buy soybeans and other products somewhere other than the United States, but slumping commodity prices have hurt. Brazil’s central bank cut interest rates, and President Jair Bolsonaro’s government is giving out cash payments to workers in an effort to stimulate growth.

Argentina: Argentina is in crisis. It’s already in a recession, and it appears to be getting worse. On Monday, Argentina’s stock market dropped nearly 50 percent, the second largest one-day crash any nation has experienced since 1950. The country is experiencing rapid inflation, when prices spikes, and President Mauricio Macri was defeated in the nation’s primary elections. Investors fear Argentina won’t be able to repay its debts, and middle-class Argentines are fearful they won’t be able to afford everyday products as the value of the Argentine peso keeps dropping, especially against the U.S. dollar.

Singapore: The Asian nation reported Tuesday that its economy contracted 3.3 percent in the second quarter, a sharp reversal from over 3 percent growth in the first quarter. Singapore blamed the U.S.-China trade war for its problems, as its economy is heavily reliant on exports. Many economists watch Singapore and South Korea as strong indicators for what’s ahead for the global economy because these nations trade with so many others, especially China and the United States.

South Korea: South Korea managed to avoid a recession in the first half of the year — barely. The South Korean economy shrank 0.4 percent in the first quarter but rose 1.1 percent in the second quarter, a better-than-expected performance that many experts don’t think will last. Japan and South Korea are in the midst of a trade war of their own that is expected to drag down growth and make it harder for South Korea to sell electronics and cars abroad. The South Korean central bank lowered interest rates, but it’s unclear if that will be enough. Electronics exports are down about 20 percent in recent months, and semiconductor exports are down more than 30 percent, according to ING.

Russia: A Russian economic institute warned last week that Russia could be in a recession by the end of the year after growing a modest 0.7 percent in the first half of 2019. Russia has struggled since 2014 as oil prices plummeted and other nations put sanctions on Russia because of its military actions in Ukraine. Russia has worked to shield its economy as much as possible from U.S. government sanctions by limiting deals with the United States and in U.S. dollars, but that has meant greater reliance on China, which is now slowing. Russia has also tried to build up its government cash reserves, which has left little money for stimulus.

The United States economy is primarily a service economy that feeds off domestic demand, which provides some insulation to problems overseas. But there are limits to that buffer. As other countries falter, global investors are buying up U.S. Treasury bonds, causing the yield curve to invert in the United States, a recession warning sign and reminder that there are ways that panic abroad spills over.

“There is potential for a U.S. recession, not because of the yield curve itself, but because of the lunacy of trade policy and the damage it’s doing,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics.

John Cassidy adds in the New Yorker: Trump’s Trade War Could Make the Trump Recession a Reality.

Economic forecasting is a bit of a mug’s game. Mature capitalist economies tend to plod along, growing at modest rates, until they don’t. Despite extensive efforts, nobody has discovered a reliable way to predict when that moment will arrive and, subsequently, a recession will begin. …

What we do know for sure is that, the longer Donald Trump persists in his trade war, the greater the chances are of an outright slump developing. …

“Trump has now revealed his pain point,” Yahoo Finance’s Rick Newman noted on Wednesday. “He’s unwilling to tax American consumers beyond a nominal level, or stomach the stock-market turmoil steep tariffs cause. This is the fundamental problem with tariffs as a tool to gain leverage in trade negotiations: To inflict pain on a trade partner, you have to hurt your own economy first, through higher taxes.”

Not just your own economy… [Scriber: See the list of nine countries above.]

[There are] fears of a global downward spiral of the sort that some trade experts warned about back when Trump embarked on his campaign to upend the global trading system. “It’s a dangerous game,” Dan Ivascyn, the chief investment officer at the big fund manager Pimco, told the Financial Times on Wednesday. “We think some economic damage is dealt every day that this uncertainty lingers.”

The bright spot

If there is one, it is this: If we tip into a recession any time soon it will be on Trump’s watch. He’ll be running on no follow-through on his election promises and a recession as well.

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