Why we aren't predicting a global recession

▀ Fears that the global economy is heading into a recession are rising. But while we cannot ignore the risks that a recession could be brewing, our baseline assumption is still for a modest growth slowdown from here. ▀ The global economy is in a similar position to 2012 and 2015, as mounting uncertainties dampen growth. This time, trade tensions are a high‐profile culprit rather than the possible collapse of the eurozone or a China hard landing. ▀ In the previous two cases global growth fell to around 2.5% ‐ around the rates seen in Q2 this year ‐ only to then rebound. Our baseline forecasts assume a similar mini cycle, albeit with only a modest growth rebound. ▀ We also assume that further major adverse shocks won't materialise, and that insurance policy moves by central banks will stop a plunge in investment and households from panicking. ▀ Still, recession fears should be taken seriously ‐ slowdowns can become self‐perpetuating. Once annual GDP growth has fallen by over 1ppt from its peak, the eventual decline typically ends up being much larger ‐ of the seven growth slowdowns since the late 1970s where annual growth slowed by over 1ppt ‐ four resulted in either a global recession or only a narrow escape from one. ▀ With US‐China tensions unlikely to recede and factors like the US yield curve inversion adding to the air of gloom, the latest downturn could gain momentum. ▀ Although reduced macro volatility and anchored inflation have made it easier for policymakers to deliver soft landings, the effectiveness of monetary policy has waned. And with China no longer acting as spender of last resort, it's vital that governments in advanced economies stand ready to pick up the slack