Skip to Content

Asian Tribune is published by World Institute For Asian Studies|Powered by WIAS Vol. 12 No. 2703

The Cyclic Emergence of the Dreaded R-Word: is global recession in the offing?

Hemantha Yapa Abeywardena writes from London…

The indications are not good; red lights are flashing on the horizon and they just get more and more intense in proportion to the threat of trade wars and the corresponding rhetoric, involving major global players.

Having been through an extended, jubilant period, the US stock markets started showing the signs of strain during the past few weeks, perhaps being affected by the news of yet another wave of sanctions against China by President Trump.

In a matter of days, he reversed the decision inexplicably, giving markets a brief respite; not only was it short-lived, but also implied that there was strong correlation between tariff-wars and the global slowdown – something that could be politically disastrous for President Trump, who wants to be re-elected next year.

Meanwhile, bad news started emerging from major global economies in quick succession: UK reported a negative growth in the second quarter and so did Germany; if the pattern repeats in the next quarter, going by the definition, the two countries will be technically in recession.

As far as UK is concerned, an anticipated no-deal Brexit in October is not going to make things any better at a time, when the country needs a shot in the arm, in this context.

The situation in Italy and Greece is not very encouraging either; the lingering political uncertainty could only accelerate the arrival of the unpleasant cumulative outcome.

China, meanwhile, reported the slowest growth rate for 30 years and the worst economic output for 17 years; this is the world’s second largest economy and the figures announced by China are from its official version.

In the Far-East, in the meantime, South Korea and Japan have locked horns in duel of their own, that stems from decades-long mistrust, cloaked in mutual loathing. Japan’s choice of products for tightening controls of sale for South Korea clearly shows that the former is determined to hit where it hurts most – the chemicals essential for producing semiconductors; semiconductor chips are South Korea’s top export!

South Koreans hit back by boycotting Japanese beer, popular clothing brands and refraining from travelling to Japan.

In the Middle East, meanwhile, Iran is reeling from crippling sanctions at present; in the South Asia, Kashmir issue has added another worrying dimension to India’s slow growth; it’s inevitable that Pakistan is going to get caught in the web of uncertainties – for obvious reasons.

In short, this is truly an ominous, global occurrence from whatever angle you look at it, even if those who inadvertently contributed to it think otherwise.

In the interconnected world, it’s not rocket science to understand how the trade wars grew into a worrying mushroom that casts a menacing shadow across the world.

yield

For instance, when President Trump bragged about the way China got hurt with the first two waves of tariff, it certainly was music to the ears of his ardent followers. Judging by its latest growth figures, what President Trump said was true about China without a shadow of doubt.

When China slowed down, however, it dragged down the countries that do business with - along with it.

For instance, Germany’s auto sale dropped sharply in the second quarter, which may have triggered off its negative growth, once the supply chains are hit in proportion to the blow. It may be the case in the UK too, as the Brexit is still months away, in spite of the mild fluctuations of anxiety over the issue.

There are reports that farmers in the US are hit too, as China does not want to import the farm products in retaliation. That means the shadow of gloom is slowly, but surely heading towards the US shores too.

On a relatively medium scale, when Iran’s ability to buy goods is on an exponential decline, having been hit by severe sanctions, its neighbors are feeling the pinch before major European and Asian players feeling so. The repercussions are going to be felt in Turkey, UAE, India, Pakistan and many more nations.

In South America, the situation is no better; Argentina’s currency, peso, lost more than a quarter of its value in just two days; some fear the country may default on its debt once again, unless remedial measures are taken quickly.

In addition, the dire situation in Venezuela can drag its neighbours into precipice of unimaginable political and economic upheavals.

In the midst of palpable gloom, investors are on the run towards safe havens such as gold and government bonds. As for the latter, 30-year bond yield in the US fell below 2% for the first time, implying the panicky rush by investors towards them – on the basis that bond yield is inversely proportional to bond price.

The developments in the bond market provided the analysts with yet another indicator to predict an onset of a recession – the dreaded inverted yield curve - a harbinger of recession.

yield

While summing up what is going on in the major economies, a professor in economics said that he saw fires everywhere, but not enough firefighters to put them out.

As a major global downturn stare at us since 2008, respected economists want the major powerhouses in Europe and America to indulge in major infrastructure projects as a form of reliable stimulus.

There is no better time to do it than it is now, they say, on the grounds of cashing in on the closer-to-zero or negative interest rates, if they are to go on a borrowing spree.

- Asian Tribune -

The Cyclic Emergence of the Dreaded R-Word: is global recession in the offing?
diconary view
Share this


.