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Recession: 5 of the world's largest economies are on the verge



"The bottom line is that the German economy is teetering on the brink of recession," said Andrew Kenningham, chief economist at Capital Economics.

Mexico only avoided a recession – usually defined as two consecutive quarters of contraction – and the economy is expected to remain weak this year. Data suggests that Brazil fell in recession in the second quarter.
Every economy is among the largest in the world. Singapore and Hong Kong, which are smaller but still serve as important hubs for finance and trade, are also suffering.

While growth has been slowed in each country by a specific cocktail of factors, a global decline in production and a sharp decline in confidence in the company have worsened the case.

China's massive economy is growing at its slowest pace for nearly three decades as the country wages a protracted trade war with the United States, which will impose new taxes on Chinese exports in September and December.

"The trait is the weak global backdrop," said Neil Shearing, chief economist at Capital Economics.

The International Monetary Fund last month cut its forecast for global growth this year to 3.2%, the weakest expansion rate since 2009 . It also downgraded expectations for 2020 to 3.5%.
Investors are becoming increasingly concerned. The bond market is flashing warning signs, and more than a third of the asset managers surveyed by Bank of America expect a global recession over the next 1
2 months.

Economies at risk

Germany relies on exporters selling a disproportionate amount of goods to China and the United States. The lack of global car sales has also hit car manufacturers.

"Today's GDP report definitely marks the end of a golden decade for the German economy," said Carsten Brzeski, chief economist in Germany at the Dutch bank ING.

  A German car supplier near Berlin in July.

While the fear of a chaotic Brexit is helping to drag the German economy, it causes the most pain in the UK, where the economy is shrinking for the first time since 2012. [19659008] The UK economy should resume in the third quarter and avoid an immediate recession. But if Prime Minister Boris Johnson pulls the country out of the EU without a deal to protect trade on October 31, a recession is likely to be inevitable.
In Italy, low productivity, high youth unemployment, enormous debt and political turmoil are blamed for its continued discomfort.

Investment has fallen in Mexico and the country's service sector is under pressure. Brazil, the largest economy in Latin America, suffers from weak industrial production and high unemployment. Data coming in the coming weeks will confirm whether it has fallen in recession.

Storm clouds

Cutting argues that some of the gloom and doom are unjustified. On a global level, he says, companies' consumption of assets such as equipment has stabilized. The labor market is resilient.

"Although there are pockets of extreme weakness in the world economy – especially in industry, other parts hold up relatively well," he said. "All of this is in line with our view that global growth is slowing rather than collapsing.

  A major iron ore mine in northern Brazil.

Yet he also points to three major risks.

The first is the trade war. If Beijing and Washington continue to ratchet tensions higher, business confidence could plummet. The International Monetary Fund has warned that growth in 2020 would be reduced by half a percentage point if the dispute escalates further.

Another major risk is that central banks are unable to trade, causing a negative reaction in the financial markets that flow through to the real economy. The US central bank cut interest rates last month for the first time in 11 years, and the European Central Bank has hinted that it will issue more stimulus in September. The pressure is based on China to reduce its main interest rate for the first time in four years.

Other central banks from India to Thailand have reduced interest rates and more cuts are expected.

The final risk is that the global services sector, which has supported growth, is beginning to mirror the decline of the industry.


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