Fears of a global recession have emerged as the trade war between the world’s two largest economies – the US and China escalates further and the outlook for the global economy continues to weaken.
If the US continues to raise a wall of tariffs on Chinese goods in the coming months and China responds, a global recession can be expected in three quarters, Morgan Stanley said recently.
The tensions also extend beyond the United States and China to include Japan and South Korea as well as Britain’s future relationship with the European Union.
The International Monetary Fund (IMF) has revised down its projections for global growth in 2019 twice since October 2018, from 3.7% to 3.3%.
Last week President Donald Trump announced that, beginning September 1, the US will add levies of 10% on the remaining $300bn in Chinese imports that had not previously faced duties. These new tariffs “raise downside risks significantly”, Morgan Stanley said.
The Chinese yuan has already weakened below a key level, which Reuters reported came after the Chinese central bank set the midpoint of the yuan’s price against the dollar at its weakest level since December. President Trump and some analysts attributed the currency’s weakening as retaliation by China, although the country’s central bank denied that it made the move as an intentional response.
In a recent economic commentary, QNB noted the risks of global trade conflicts between the US and other key US partners such as Mexico and the European Union (EU) are increasing. Trump has recently threatened to slash tariffs on Mexico in order to force the country to prevent immigration into the US from other Central American countries via Mexico.
Moreover, the EU is seen as a potential target for US tariffs on car imports. Should trade tariffs on Mexico, the EU or any other US partner materialise in a significant way, sentiment would likely deteriorate sharply with a potential expansion of trade risks much beyond the US-China disputes.
Also, Brexit-related uncertainties (associated with the framework for the formal UK exit of the EU) are a permanent drag on the UK economy and a headwind for the EU. Risks of a disorderly Brexit have increased as three different proposals of “Brexit deals” have been rejected by the British Parliament.
After several delays, the new deadline for a formal Brexit is the end of October 2019. A hard or disorderly Brexit would severely hit the UK economy and would generate political and economic shockwaves in the EU, QNB said.
Bloomberg recently warned that the escalating trade war between the US and China was nudging the world economy towards its first recession in a decade and said investors were demanding politicians and central bankers acted fast to change course.
The latest setback hit German industrial production, which in June registered its biggest annual decline in almost a decade, highlighting the severity of a manufacturing slump in Europe’s largest economy.
In the Asia-Pacific region, central banks in New Zealand, India and Thailand made surprise interest-rate cuts trying to safeguard their economies from global headwinds.
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