Shall We See A World Recession? In 2019-2020!
By Jitendra Kumar Sharma
Critics pin down Lehman Brothers for starting the last Recession in 2008? Skeptics prophesy that 2020 shall witness a humongous recession, much larger than the 2008 recession. They are also very sure whom to blame for it: Donald Trump, President of the United States of America, shall bring about this Recession in his election year, 2020!
The question currently being asked in Europe and the USA is what shall prompt the next Recession in 2020? And the answer is that President Donald Trump’s unsustainable policies shall bring down the western financial system.
Nouriel Roubini, a professor at NYU’s Stern School of Business and Brunello Rosa, a research associate at the Systemic Risk Centre at the London School of Economics, in a co-authored syndicated article, claim that because of the “unsustainable fiscal policies in the US …, the stage will be set for another downturn.” Interestingly, they have made this gloomy prediction after duly noting the global economy’s sustained and “synchronized growth” which, they seem to be pretty sure, will “loose steam” and the governments everywhere will not know which way to turn because they will have “no policy tools” to cope with this Recession in 2020 .
China and the USA being at trade war, observers predict that 2020 will see a global recession and the USA’s enormous “fiscal deficit” and China’s “loose credit policies” will cause it. The US economy is currently doing well but, can it go on rising? Critics believe, it cannot. It will start declining and could nosedive up to 1% from its present level. Inflation is already going upward and so will short-and long-term interest rates.
Oil prices in countries like India are unbearably high and inflationary pressures are inevitable as the oil sanctions on Iran get globally attritional despite US concessions to India on importing oil from Iran. The US trade feud with allies like Canada, Europe, Mexico as well as adversaries China and Russia will sharpen and ultimately adversely affect both world trade and economy.
Restrictions on immigration in the USA and other western countries and reduction of technology transfers list will disrupt the global supply chains and unavoidably lead to stagflation.
US protectionism and expansion of world economy cannot go hand in hand. Adversely affected countries shall be forced to react and find ways to make good and even avenge their losses. China will not be alone; other governments will join the fight against US protectionism and tightening of monetary conditions in the USA.
In Europe too growth will slow down because of monetary tightening and trade detrition. Some European countries like Italy are pursuing populist policies which could upset the debt and credit system in eurozone. Already governments and banks in Europe are obdurate toward resolving differences about risk-sharing issues; a global downturn could impel Italy and other countries to walk out of the Eurozone.
Global equity markets are bubbling. US Price-to-Earnings ratio is choppy, private-equity valuation excessive and government bonds do not yield enough. Credit is increasingly costlier. Leverage in both advanced and advancing economies is high. Real Estate remains expensive in big countries like India and in many other big and small countries. Price correction and lack of liquidity are awaiting a global financial disaster, say the skeptical observers of the stock market behavior and expect “flash crashes” to happen with erratic frequency.
As risk factors increase, dollar-denominated liabilities will not be able to get lending support from the Fed and the traditional support central banks extended during the post-crisis may not be available.
2019 will be election year for Modi in India and 2020 will be the Election Year for Trump. Trump’s stiff reaction toward the Fed, critics predict, will get stiffer reaching a breaking point when in that year growth is feared to fall to less than 1% .Amid rising joblessness Trump is feared to create war hysteria if the Democrats re-occupy and get majority in the House of Representatives in 2020. Chances of US military confrontation with Iran are very high in this scenario. And that would render global oil crisis more catastrophic than all previous oil crises. Modi’s scrap with the Reserve Bank of India has already forced the Reserve Bank Governor, Urjit Patel, to resign.
A more fearsome possibility is that the humongous public debt shall foreclose resort to fiscal stimulus bailouts as debt-ridden governments will not be able to impose austerity measures in the face of rising populist movements.
According to International Monetary Fund’s assessment, an economic slowdown in China will hurt everyone but it will hurt more regionally than intercontinentally. IMF is somewhat smug about the impact of a possible Chinese recession on the USA.
Kenneth Rogoff, a former chief economist at IMF, currently Professor of Economics and Public Policy at Harvard University, however, doubts the US immunity from the Chinese recession because “Trump’s trade war also threatens to undermine the US economy’s dynamism. Its somewhat arbitrary and politically driven nature makes it at least as harmful to US growth as the regulations Trump has so proudly eliminated”.
Recent confabulations between China and the USA at Buenos Aires indicate that the US and China could reach an agreement before Trump’s drastic tariffs take effect.
Rogoff, predicts that, “a recession in China, amplified by a financial crisis” shall be “the third leg of the debt supercycle” that originating in the US in 2008 spread to Europe in 2010. He appreciates the Chinese authorities’ “remarkable job in postponing the inevitable slowdown”. And, when this Chinese “downturn arrives, the world is likely to discover that China’s economy matters even more than most people thought”, says Professor Rogoff.
Thus the governments in all parts of the world will be at their wits’ end unable to invent policy to deal with this very Special Trump-triggered Recession 2020!
Shall we then watch for the US and Chinese recessions in 2019-2020 with our fingers crossed?