12 June 2019

2019- Are we witnessing the beginning of a new global economic recession?

Sergiu Medar

Recent analyses of the global economic indicators and world’s greatest economies are revealing some huge similarities with the start of the 2008-2009 global economic recession’s developments. This is also matching global economic recession’ 8-10 years of cyclicity, unanimously recognized and accepted. Hereof, the main consultancy companies, which are monitoring the global economic and financial developments, are stating that there will be a new recession in 2020, starting this year.

Image source: Mediafax

The economic recession refers to a temporary shutoff or even decrease of the main economic indicators, the most important being the GDP (Gross Domestic Product). In other words, it is a deadlock or a decrease for producers’ incomes. Even if no one sees it as a catastrophic fact for one state’s economy, or a group of states, recession can be followed by economic crisis or slump. Temporary economic recession is, normally, admitted after GDB decreases for two trimesters in a row. Then, through effective economic measures, the above mentioned economic indicators can be increased, hence, the economic recession ends.

We can also talk about economic recession even if incomes do not go below the baseline, but also when a continuous increase is slowed down, even though it still has positive values. When this situation gets to several states, especially to world’s strongest states, we can refer to it is a global economic recession. According to International Monetary Fund (IMF), economic recession seems to emerge each 8-10 years. The mentioned organization talks about six global economic recessions, since 1970 to 2019: 1974-1975, 1980-1983, 1990-1993, 1998, 2001-2002 and 2008-2009. Only some of them were followed by economic slump or global economic crisis. Some of world’s states are calling on economic recession only as an excuse to take restrictive economic measures, which, for some of them, could have a political or social impact.

Given this phenomenon’s cyclicity, its statistical approach makes us thinks of 2019 or, best case 2020, as the moment of a new global economic recession. According to economic indicators’ analysis, from 2018’s end, the economic results that world’s main economic powers got in the first 2019 trimester led to economic indicators’ decrease in terms of the economic and financial ambition for 2019, as well as for the 2020 projection. Normally, each beginning of the year, economic indicators are decreasing and states are making new evaluations for next year’s economic indicators. However, according to world’s economic and financial organizations’ estimations, most likely we will deal with an economic recession that will start in 2019.

US produces 25% of world’s GNI (gross national income) being, at the same time, the biggest products importer (14% of the global imports). The US is China, India and Germany’s first products importer and Japan’s second biggest importer, if we only consider the main global economic exporters. For example, half of Germany’s GNI comes from exports.

If we only factor in this observation, a possible US economic recession will have serious negative consequences over the entire world. At the same time, global economic recession’s estimations are concluding that this next recession will have less effects over the US economy. It will only depend on one state’s own economic parameters, but it will have huge consequences over the global recession.

At the same time, US’s economy does not depend that much on the global economic indicators, because only 13% of its GDP comes from exports, 50% of it going to Canada and Mexico. This makes US be less affected by other states’ economic evolutions, especially by those dependent on exports, like Germany, China, India or Russia. US’s imports decrease, due to economic recession will, however, affect these states’ economies. The first three states will suffer from direct effects, meanwhile Russia will deal with indirect consequences, like energy’s consume decrease by developed Western states, as consequences of manufacturing’s decrease.

At the beginning of 2019, US’s GDP was reevaluated, due to the coming economic recession, from 3% in 2018 to 2,1% for 2019, and in the 2019-2021 period the GDP will go to 1,7%.

According to Bloomberg’s estimations, the global economy will be 3,3% in 2019, being the smallest value in the last 10 years, an obvious indicator that the recession will have a global impact. In fact, almost all economic and financial indicators the famous company analyzed are indicating such evolution.

Along this GDP growth rate decrease, the next period will also be defined by consumers’ debts increase, especially of big corporations’ ones. If we take a look to what happened in 2008-2009, it seems that we are dealing with a déjà vu story, but policymakers favored the quick economic advantages to have political winnings, most of them being illusory. The difference between these two moments is that, back then, the recession came due to housing crisis, and now because of corporatist loans. Banks’ answer is simple: increase the interest to cool down loans’ growth. This could led, in the end of 2019 and begging of 2020, to investments, jobs and salaries’ decrease and, also, to social movements and political instability when the world is already facing a high global and regional instability rate.

In 2019, the global trade will suffer from dramatic decreases, reaching a historical level, due to failed trade negotiations between China and US, the US-Germany tensions, affecting both states’ trade and the economic sanctions imposed to Iran and Russia.

We also must mention Brexit’s negative impact on the European economy and Germany’s exports to United Kingdom of Great Britain and North Ireland. A no deal Brexit will not favor neither London, nor the EU member states.

Economic recession’s effects will be larger in states whose economies rely on globalism and multilateralism, as their economies depend on other state’s economic evolutions. This is Germany and China’s case.

Global recession, to start in 2019 and reach its climax in 2020, appears to be medium and, according to estimations, it will not get to a global crisis as states, whether individual or in common, will quickly find ways to bring economies back to normal.

Translated by Andreea Soare