“There seems to be an accumulation of smaller problems and the underlying backdrop is that we have no good policy response,” he said in a Bloomberg interview.
Krugman isn’t alone in seeing a gloomy outlook for the world’s biggest economy. US chief financial officers in a Duke University survey published in December overwhelmingly said they expect a recession within two years.
The Fed has halted its interest-rate hiking cycle amid many a headwind facing the economy. A Federal Reserve Bank of New York gauge put the chance of a recession at 21% a year from now, the highest since 2008.
A separate Bloomberg survey earlier last month showed economists raised the probability of a recession in the next 12 months to 25%, the highest in more than six years, amid the shutdown and trade war.
The Wall Street’s biggest banks have been scouring US data for signals of an impending recession.
JPMorgan sees a 35% chance of a recession this year, up from 16% in March last year. Globally, UBS has studied 40 countries over about 40 years and found the US to be among those currently behaving in a way inconsistent with prior peaks.
That said, the Fed’s Survey of Professional Forecasters late last year showed that they were starting to sour on the economy’s prospects four quarters from now. But their pessimism might be too remote to mean much.
To be sure, several US economic indicators are slowing down, but economic data have yet to fall off a cliff.
Americans will begin feeling the effects this year of a marked slowing in world economic growth but should be spared a new recession, the chief economist of the International Monetary Fund said in late 2018.
As the Donald Trump administration ramps up debt sales to cover a budget deficit projected to hit $1tn this year, a potent mix of a strong dollar, weak stock markets and flat yield curve squeezing the availability of global money don’t bode well for the US economy.
In a wider sense, the global economy entered 2019 with a weakened momentum.
Emerging markets are buckling under the weight of a strong dollar; the eurozone is growing at a slower pace; Germany’s economy contracted in the third quarter, Japan’s economy shrank at an annualised rate of 2.5% in Q3; and Britain is being battered by Brexit chaos.
On top of that, China, the engine of global growth for the past 15 years, is growing at its slowest pace in a decade.
The question is whether the US can resist the downdraft, providing a balance for the rest of the world. Most economists forecast US growth will ebb a bit in 2019 on the back of protectionism, higher interest rates and the fading support of tax cuts.
But if businesses, consumers and other countries conclude that the US is not a bastion of predictability and stability for the global economy, it is a greater concern.