Are we reaching the recession tipping point? What the experts say
The heads of the World Bank and the IMF are warning of the risk of a global economic slowdown. (energepic.com / Pexels)
Published Thursday, October 10, 2019 6:22PM EDT
Last Updated Friday, October 11, 2019 9:09AM EDT
TORONTO -- Two of the world’s most prominent financial players are warning of the risk of a global economic slowdown, but experts say there’s no reason to believe a full-on recession is in the cards anytime soon.
Speaking in Montreal on Monday, World Bank Group president David Malpass described the state of the global economy as “fragile,” pointing to the World Bank’s initial prediction that the global economy would grow in 2019 at 2.6 per cent, its slowest pace in three years.
“We now expect growth to be even weaker than that, hurt by Brexit, Europe’s recession and trade uncertainty,” he said, according to a transcript of his remarks published on the World Bank website.
Kristalina Georgieva, the new managing director of the International Monetary Fund, said Oct. 1 that she expected global economic growth this year to be at its lowest level in nearly a decade. The IMF is also cutting its forecast for the global growth rate, which it had projected at 3.2 per cent this year and 3.5 per cent in 2020.
“We expect slower growth in nearly 90 per cent of the world. The global economy is now in a synchronized slowdown,” she said in a speech in Washington, D.C.
However, there is a big gap between slowed growth and outright recession. It is normal for global GDP growth rates to fluctuate significantly from year to year. A recession -- defined as GDP shrinking for two or more consecutive quarters -- is much more rare.
The last recession in the U.S. occurred between 2007 and 2009. Canada was in a recession in the first half of 2015, but didn’t feel the prolonged economic misery that typically accompanies recession at that time.
THE VIEW FROM CANADA
Canadian analysts say they expect the global slowdown in economic growth to play out in Canada as well, but don’t see either the country or the world coming anywhere near a recession.
“The Canadian economy will keep growing, albeit at a slower pace,” Kip Beckman, a principal economist with the Conference Board of Canada, told CTVNews.ca on Thursday via telephone.
He said low unemployment, rising wages, dropping mortgage rates and a rejuvenated housing sector will help keep Canada’s economy growing, although they won’t be enough to cause skyrocketing growth either.
“There is some good news in Canada, but certainly we’re not looking for growth to rise above 2 per cent for a while,” he said.
Fred Lazar, an associate professor of economics at York University’s Schulich School of Business, said in an interview that the global economy slipping into a recession would likely require a major international development, such as conflict in the Middle East sending oil prices skyrocketing or unrest in Hong Kong spreading to mainland China.
“There are a lot of these sort of question marks around it. Are they likely to materialize? There’s always a possibility. I would view it as quite slim, though,” he said.
Lazar said he expects growth to slow in China, while Europe could find itself in a recession, but those two developments combined would not be enough to cause the entire global economy to contract.
“We’re not on the precipice or going to fall into the abyss. We’re not anywhere near that,” he said.
For his part, Beckman is forecasting “weaker growth … but not a global recession.”
“I know there’s been lots of talk about this, but unless the U.S. drops into a recession – which we don’t see – I don’t think there’s going to be a global recession,” he said.
Experts are agreed that a recession is a remote possibility at best, even though virtually every forecast for the world economy has been downgraded repeatedly over the course of the year.
The main driver of these increasingly gloomy projections has been trade uncertainty. Various trade conflicts will result in the loss of about 0.8 per cent of the global GDP by 2020, Georgieva said Oct. 1. That’s far higher than what the IMF had previously considered a worst-case scenario.
“We are already shooting ourselves in the foot,” she said.
“The results are clear. Everyone loses in a trade war.”
It’s the latest in a series of signs that trade disputes are taking a legitimate toll on the economy, both via direct impact and by creating negative reactions in financial markets.
The U.S.-China trade dispute has hogged headlines in recent months, but it isn’t the only international incident contributing to sluggish growth globally. Japan and South Korea are locked in a trade war of their own, Italy has just slipped out of one period of recession and could be headed for another, and nobody knows what is going to happen as the Brexit deadline nears at the end of the month.
“The geopolitical tensions are higher than normal,” Beckman said.
“That’s something simmering in the background which we’ll have to be aware of going forward, and that’s responsible for the smaller growth.”
That simmer could come to a boil next week as a Chinese delegation visits the U.S. to talk trade. Whatever happens, economic leaders will be watching closely – especially since next week is also when the IMF will release its next world economic outlook.
With files from AFP