The major economies of the world are headed for recession while the US economy continues to grow. German economic production and productivity is slowing due to weak exports which Germany depends upon as the fuel to drive its economic engine. Where Germany goes, so will the rest of Europe which is already in a much weaker position. China is also reporting slower growth and a fall in GDP as a result of the current trade tensions (however, one should not believe any GDP numbers coming from China). The US economy on the other hand continues to stump economists with trends pointing to a respectable 2% to 2.25% GDP for 2019 despite the global slowdown and the trade dispute with China.
The Fear
There is a danger that the psychology of fear could push the US economy negative despite currently strong business performance, historically low unemployment and strong consumer spending. With enough fear, the US could possibly go into a recession through a self-fulfilling prophecy. The sources of the fear and worry for the US includes things such as the global economic slowdown, the strong US dollar, political uncertainty, China trade dispute, and yield curve inversion. The yield curve is simply a situation where the long term interest rates being lower than short term rates. This many say is proof the economy will head into a recession.
GLM Economic Forecast
We believe that while the risk of a recession has risen, it is still unlikely we will see a recession in the next 12 months given solid US economic performance to date. The fear of the yield curve inversion is overblown and there are several reasons as to why. Firstly, interest rates have never been this historically low and close to zero. Secondly, the quantitative easing or “QE” policy in the past years by the US and other governments around the world has lead to significant distortions in bond market yields and lastly, the joke is that the yield curve inversions have accurately predicted 15 of the last 7 recessions.
What is more likely to happen in the next 12 months is a US GDP that chugs along around 2% while the rest of the world flattens out. However, as mentioned, if there is significant fear, whether based on reality or simply the markets looking for a boogeyman, the fear itself can reduce economic activity and lead to a recession (but we think it is unlikely).
[…] 2019 and that the US economy will continue its solid growth while the rest of the world falters ( https://globallibertymedia.com/glm-economic-outlook-sept-2019/ ). Our outlook was based upon the idea that the underlying economy was strong despite all the […]
If China comes to the negotiating table (in good faith), our growth will top 3%, their growth will re-ignite, and Germany’s recession will end.