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After a decade of sustained growth, the global economy largely recovered from the Great Recession. A number of indicators, however, are raising concerns that a contraction may be coming soon.
Several of the world's biggest economies are showing signs of trouble, experts say. The world's two economic leaders — the U.S. and China — are each feeling the pain from an ongoing trade war that could drag on for months, if not years. Last week, the U.S. showed an “inverted yield curve,” a complex financial metric that has occurred before each American recession since the 1950s.
The economies in Germany, Brazil, Italy, Mexico and a number of other countries are also showing vulnerabilities, experts say. The uncertainty is exacerbated by fears of the potential financial fallout that could happen if the United Kingdom leaves the European Union in October without first reaching a deal on the terms of its departure.
In general, an economy is considered to be in recession when it posts two straight quarters of declining gross domestic product. Some governments use their own more nuanced measurements to formally declare that their country is experiencing a recession.
Why there's debate:
Pessimistic forecasters say all of these indicators point to an imminent global recession. Periods of expansion and contraction are normal in all economies, but some experts fear a potential cyclical downturn could be made significantly worse by tensions between the U.S. and China, by Brexit and lingering effects of the Great Recession.
Despite signals of a slowdown, some experts say there are also signs, such as the low unemployment rate, that the world economy is strong. “There is no recession is sight,” Trump administration economic adviser Larry Kudlow said.
Others argue even if negative signs show a recession is coming, there's no indication of when it will happen or how severe it might be.
Fears of a recession might trigger a recession.
“If we all think there will be a recession, everyone produces a bit less in anticipation of lower demand. Lower production is the recession.” — Columbia University finance professor Laura Veldkamp to Washington Post
Recessions are very hard to predict.
“Are we headed for a recession? No one knows for sure. The rapid changes in the U.S. and global economies make reliable predictions difficult and indicators even more unclear than those that preceded the Great Recession of 2008. Moreover, economists are terrible at predicting recessions.” — Perry L. Weed, Baltimore Sun
The trade war is driving the world economy to recession.
“Not only is the U.S.-China trade war no longer a 'what if' in terms of its massive impact on global trade activity, but its effects are spreading in a highly interconnected global economy.”
— David Parkinson, Globe and Mail [Canada]
Trump's response to a downturn could make a recession worse.
“If a recession does develop, this raises the prospect of a president who refuses to believe it and does nothing to avert or escape it. Or, he acknowledges there’s a recession but blasts the Fed for causing it. If Trump did that, he’d be attacking the credibility of the one institution best empowered to fight a recession, and that is not how you rebuild confidence amid a downturn.” — Rick Newman, Yahoo Finance
China and the U.S. could avert a recession by resolving their trade war.
“A sudden end to the trade deal may be imperative — without it we don’t have much time before the next recession begins.” — Sven Henrich, CNN Business
A no-deal Brexit will drive down the global economy.
“The economic risks of Brexit might have been crassly mobilised for campaigning purposes but that does not make them imaginary. And every credible analysis makes it abundantly clear that the no-deal scenario is the riskiest of all.” — Editorial, The Guardian
The severity of the Great Recession has made people prone to overreaction.
“The Great Recession continues to loom large in people’s minds, and millennials who entered the working world in its aftermath still fall behind Gen Xers and baby boomers in terms of homeownership and having children. It makes fears of a recession easy to stir up, especially when there are a few signs of contraction.” — Emily Stewart, Vox
The Chinese economy will determine whether a recession happens.
“Americans tend to think of their own markets and their own consumption as the driver of both booms and busts. That may not be true this time around. Instead, any recession may be made in China. … Thus when China sneezes, to modify an old saying, the world may now catch a cold.” — Noah Smith, Bloomberg
The way we define a recession is a poor metric of economic health in today's economy.
“To avoid overreacting, the discussion about economic health needs to shift to measures that better capture satisfaction and contentment.” — Ruchir Sharma, New York Times
The world economy has changed so much that old predictors may not apply anymore.
“This much is absolutely true: we are in unknown territory, out past the ‘here be monsters’ sign. None of us has any idea how this will turn out, economists included.” — Neil Macdonald, CBC
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