The R word

michaels

An oft used economic indicator is the number of times the R word (recession) is used in the press, with usage peaking prior to and during a recession it is potentially a good leading indicator.

Recently I haven't seen it used a lot, there is always talk of a slow-down, most related to Brexit but have we been so caught up in our local little political difficulty that we have missed the big picture on global growth.

Germany saw negative growth last quarter, put down at the time as a one off due to changes in EU car regulations but now we are also seeing the US yield curve inverting (investors are earning more on short term lending than longer term which makes little sense in theory, why lock your money up for 10 years if you can earn more lending for 2? Well it only makes sense if you expect a sharp fall in rates in the near future - the sort of fall you get with a recession.

Now the UK seems to be catching cold with the new monthly GDP figures showing a sharp drop off since the summer and surveys showing the dominant service sector weakening fast.

So are we actually looking at the start of a recession that has crept up on us? The current cycle has actually seen nearly 8 year sof growth which is above average although many would argue we are far from reaching capacity constraints based on previous experience.

So, will the UK see negative growth in Q3 and Q4 or Q4 and Q1 thus being in a recession? How will the rest of the world get on?

sevenhills

michaels wrote: »

Now the UK seems to be catching cold with the new monthly GDP figures showing a sharp drop off since the summer and surveys showing the dominant service sector weakening fast.

Quarterly GDP grew at its fastest rate since Quarter 4 2016

https://www.ons.gov.uk/economy/grossdomesticproductgdp/bulletins/gdpmonthlyestimateuk/september2018

Filo25

It's interesting, certainly financial markets in the US are worried over the yield curve inversion.

On a global basis what would be the drivers for a recession from where we are now?

I can only assume a combination of Fed tightening in a pretty indebted environment, and worries about China in particular and EM in general, through a combination of the strong dollar and trade concerns. I supose we are also seeing QE being less aggressively used elsewhere as well.

Data has certainly been showing signs of softening.

Not sure yet it will be enough to push into a full recession but from a political point of view I have thought for a while that Trump won't be getting to fight the 2020 Presidential election with an economy anything like as favourable as the Republicans got to fight the 2018 mid-terms on.

Coming into this year it looked like we were seeing the Goldilocks scenario, healthy growth on a pretty global basis for the first time in a long while, but not so fast that inflation was likely to kick in, the outlook will not be remotely so favourable at the end of this year.

Asset prices are starting to show some signs of weakness as well

itwasntme001

Not enough data to suggest recession globally and in the UK. At this stage only weaker growth - but growth is still growth. Also the yield curve has not inverted yet. Its just flattened. Even if the yield curve inverts, its how long the inversion is sustained that could indicate a recession.


The data shows that for many decades a recession has always followed an inversion of the yield curve with a time lag. However how many sustained yield curve inversions has led to no recessions? i.e. false positives.


In my view we are still in a prolonged period of low growth and low inflation that could last many years yet. We will of course deviate away from this from time to time - shallow recessions and bursts in growth like we have seen in US for the last year.


My worry is the longer term picture related to productivity, demographics, unfunded liabilities of government, pensions liabilities etc. All are related and inter-wined. Only technological advancements can attempt to resolve these issues.

HAMISH_MCTAVISH

Filo25 wrote: »

On a global basis what would be the drivers for a recession from where we are now?

Not sure that there's a single issue at the moment as there was in the GFC, but the cumulative effect of several bad policies at once may well do it.

1. Trump's idiotic trade wars with just about everyone else

2. Brexit

3. Populist parties and policies dampening migration, inwards investment, etc

itwasntme001

Trump's "idiotic trade wars" actually should boost the US economy in the long run. They are not wars, they are simply the renegotiating of existing trade deals - something the UK government can learn from in terms of how to actually negotiate deals i.e. Brexit!


What Trump is trying to do is bring home lot of the low skilled jobs and thereby boost the working class standard of living. This is great for the US in terms of economic output and also reduction of the trade deficit (i.e. less reliant on China).


Brexit if implemented correctly should also have a similar effect.


Populist parties are only rising due to the rising tensions between the working class and the richer in society. That is why you need things like Brexit and "trade wars" to resolve this tension. Its to be expected so stop complaining and understand what is really going on. Learn to embrace change.

Filo25

itwasntme001 wrote: »

Trump's "idiotic trade wars" actually should boost the US economy in the long run. They are not wars, they are simply the renegotiating of existing trade deals - something the UK government can learn from in terms of how to actually negotiate deals i.e. Brexit!


What Trump is trying to do is bring home lot of the low skilled jobs and thereby boost the working class standard of living. This is great for the US in terms of economic output and also reduction of the trade deficit (i.e. less reliant on China).


Brexit if implemented correctly should also have a similar effect.


Populist parties are only rising due to the rising tensions between the working class and the richer in society. That is why you need things like Brexit and "trade wars" to resolve this tension. Its to be expected so stop complaining and understand what is really going on. Learn to embrace change.

I'm sure the UK will learn from Trump's trade negotiation approach, we will learn first hand as soon as we are negotiating with the US, good luck on tryign the same tactics in reverse, because it it will very clearly be the US that has the leverage in that negotiation and they won't be afraid to use it.

Increased protectionism rarely does anything positive for the world economy, but we rarely seem to learn that lesson from history.

itwasntme001

We can also walk away from a US trade deal if it is not beneficial. The problem is we had over 2 years at our disposal to talk to other countries including the US to come up with deals that would be mutually beneficial. The government blew it. Which is why it maybe too late. We simply had a very weak government lead by an ultra weak PM.


There is always an optimum level of "protectionism" vs "globalization". Since WW2 we have strayed too far into globalization and the result of this is showing up n populist movements.


Each country should look after it own interests primarily, that is what drives human nature individually and collectively it is what drives countries. When you have too many people p!ssed off at the status quo, things will change and so be it.

Filo25

itwasntme001 wrote: »

We can also walk away from a US trade deal if it is not beneficial. The problem is we had over 2 years at our disposal to talk to other countries including the US to come up with deals that would be mutually beneficial. The government blew it. Which is why it maybe too late. We simply had a very weak government lead by an ultra weak PM.


There is always an optimum level of "protectionism" vs "globalization". Since WW2 we have strayed too far into globalization and the result of this is showing up n populist movements.


Each country should look after it own interests primarily, that is what drives human nature individually and collectively it is what drives countries. When you have too many people p!ssed off at the status quo, things will change and so be it.

After all the "Global Britain" posturing from the ERG and friends, we will look pretty damn stupid if we end up leaving the EU and not managing to conclude some meaningful large trade deals with deep access.

I don't think anyone seriously doubts that the US has this government over a barrel in any trade negotiations, not Corbyn mind you he would still be clinging to the "Socialism in One country" dream.

If we want to start making things in the UK that we currently import from elsewhere, be prepared to pay a lot more for some of them.

Of course the other invariable law of trade wars is that they inevitably lead to retaliation.

itwasntme001

We will move to WTO rules. Its not the end of the world. And we can negotiate deals with any country in the world and not be forced to any sort of deadline.


The cost of goods may rise for some things but it could very well still be a positive for the overall economy with rising wages, output and reducing debt.


Im not saying i would like it, i wouldn't, all i am saying is it would be for the greater good of this country. It seems to me generally the people who oppose Brexit, Trump etc are mainly middle class who have cushy jobs and low cost living due to immigration and low cost goods imported from China. All this will have a cost further down the line if it isn't changed.

andrewf75

itwasntme001 wrote: »

Trump's "idiotic trade wars" actually should boost the US economy in the long run. They are not wars, they are simply the renegotiating of existing trade deals - something the UK government can learn from in terms of how to actually negotiate deals i.e. Brexit!


What Trump is trying to do is bring home lot of the low skilled jobs and thereby boost the working class standard of living. This is great for the US in terms of economic output and also reduction of the trade deficit (i.e. less reliant on China).


Brexit if implemented correctly should also have a similar effect.


Populist parties are only rising due to the rising tensions between the working class and the richer in society. That is why you need things like Brexit and "trade wars" to resolve this tension. Its to be expected so stop complaining and understand what is really going on. Learn to embrace change.

There may be a good argument for recent trends towards reversing globalisation somewhat, but this surely isn’t good for global growth. Globalisation is behind the massive growth seen over the last few decades.

Thinking that we are simply going to carry on as before, but without the downsides is not embracing change. To properly embrace it, we will need to come to terms with the downsides as well.