The risk of a global recession may be weak, but we are headed for a slowdown | Business

AThe synchronized global economic expansion of 2017 was accompanied by the asynchronous growth of 2018, when most countries other than the United States began to experience a slowdown. Concerns about US inflation, the political course of the US Federal Reserve, trade wars, Italian budget and debt difficulties, the slowdown in China, and the fragility of emerging markets have led to sharp declines in the markets. global fellows by the end of the year.

The good news in early 2019 is that the risk of a real global recession is low. The bad news is that we are moving towards a year of synchronized global deceleration. growth will fall towards – and, in some cases, below potential – in most regions.

Admittedly, the year began with a rise in risky badets (US and global equities) after the bloodbath of the last quarter of 2018, when concern aroused by increases in interest rates of the Fed and Chinese and American growth has ravaged many markets. Since then, the Fed has shifted towards greater transparency, the United States has maintained solid growth, and China's macroeconomic easing has shown some chance of curbing the slowdown.

The survival of these relatively positive conditions will depend on many factors. The first thing to consider is the Fed. Markets take into account the Fed's monetary policy pause for the entire year, but the US labor market remains robust. If wages accelerated and produced even moderate inflation above 2%, fears of at least two further rate hikes this year would come back, which could shock markets and lead to tightening financial conditions. . This, in turn, will revive concerns about US growth.

Second, while the slowdown in China continues, the current combination of modest monetary, monetary and fiscal stimulus may be insufficient given the lack of private sector confidence and high levels of overcapacity and indebtedness. If fears of a Chinese slowdown resurface, markets could be seriously affected. On the other hand, a stabilization of growth would duly restore market confidence.

A related factor is trading. An escalation of the Sino-US conflict would hamper global growth, but the continuation of the current truce through a trade deal would rebadure the markets, even as the geopolitical and technological rivalry of the two countries continues to grow stronger over time. time.

Fourth, the euro zone is slowing down and it remains to be seen whether it is heading for lower potential growth or worse. The result will be determined both by national variables – such as political developments in France, Italy and Germany – and by wider regional and global factors.

Obviously, a tough Brexit would hurt business and investor confidence in the UK and the European Union. US President Donald Trump, who would extend his trade war to the European automotive sector, would severely hamper growth across the European Union, not just in Germany. Finally, everything will depend on how the Eurosceptic parties manage in the elections to the European Parliament in May. And this, in turn, will add to the uncertainties surrounding the successor of European Central Bank President Mario Draghi, and the future of euro area monetary policy.

Fifth, a dysfunctional domestic policy in the United States could increase global uncertainties. The recent government shutdown suggests that every upcoming negotiation on the budget and the debt ceiling will turn into a partisan usury war. A report expected from the special advocate, Robert Mueller, might or might not lead to an impeachment proceeding against Trump. And at the end of the year, fiscal stimulus measures resulting from Republican tax cuts will become a fiscal drag, likely to slow growth.

Sixth, stock markets in the United States and elsewhere are still overvalued, even after the recent correction. With rising wage costs, weak US earnings and profit margins in the coming months could be a bad surprise. Highly leveraged companies face rising short and long-term borrowing costs, and many technology stocks still need to be corrected, the risk of a further episode of risk reduction and risk reduction. 39, a market correction can not be ruled out.

Seventh, oil prices could be dragged down by the overabundance of supply, as a result of shale production in the United States, of a potential regime shift in Venezuela (sparking expectations from investors). Increase in production over time) and the inability of OPEC countries to cooperate with the output. While low oil prices are good for consumers, they tend to weaken US stocks and markets in oil exporting economies, raising concerns about business failures in the energy and related sectors (as was the case in early 2016).

Finally, the outlook for many emerging market economies will depend on the aforementioned global uncertainties. The main risks include slowdowns in the US or China, rising US inflation and subsequent Fed tightening, trade wars, a stronger dollar and falling oil and commodity prices.

Although the global economy is troubled, the positive aspect is that the big central banks have been relaxed, starting with the Fed and the People's Bank of China, and then quickly by the European Central Bank, the Bank of England, the Bank of Japan and others. Nevertheless, the fact that most central banks are in a very accommodative position means that there is little room for additional monetary easing. And even if fiscal policy was not limited in most parts of the world, stimulus measures tend to come only when a slowdown in growth is already underway – and usually with significant delay.

There may be enough positive factors to make this year a relatively decent year, so poor, for the global economy. But if some of the negative scenarios described above materialize, the synchronized slowdown of 2019 could lead to a slowdown in global growth and a sharp slowdown in the market in 2020.

• Nouriel Roubini, a professor at New York University's Stern School of Business and chief executive officer of Roubini Macro Associates, was senior economist for international affairs at the White House Council of Economic Advisers during the Clinton administration. He has worked for the International Monetary Fund, the US Federal Reserve and the World Bank.

© Project Syndicate