Is There a Recession Upon Us?
No recession is ever predicted by official forecasting; it would be an entrant of failure if it was, since the whole purpose of economic policy making is to keep things homeostatic- not too hot, not too cold. Gordon Brown famously boasted he had abolished boom and bust. Alan Greenspan, former Federal Reserve Chairman, likewise believed he could defy the Gods. Ultimately, the policy makers always fail.
With the scalding experience of 2008 to learn from, the current generation of economic decision makers tends to be less hubristic in aim, yet even George Osborne is relying on extended growth way beyond the normal parameters of a typical business cycle to meet his target of a budget surplus by 2020. This bears frightening similarity to the mega-boom that Gordon Brown’s policies helped create in financial services, which ultimately tipped the balance.
Seven years of “unconventional monetary policy” stimulation has gone a long way to rekindle growth in developed economies since the recession that followed the collapse of the Lehman Brothers in 2008. The world economy is once more drowning in easy credit, with few of the underlying causes of the global financial crisis even remotely addressed.
We are in the midst of a fragile economic age. Since the start of the year, bad news has stretched from the Arabian Gulf to Wall Street, from Steelworks in South Wales to oil rigs in the North Sea, underpinned by China’s announcement that GDP had grown by “only” 6.9% in 2015, its lowest rate in 25 years!
Should China’s increasingly sensitive market enter recession, many other emerging markets, already weakened, will follow, creating an economic domino effect, possibly leading to another recession while still recovering from an economic depression. Much depends on China’s downturn and the demand for their exports.
With central banks’ and the Federal Reserve interest rates at historic lows and billions of pounds in quantitative easing –printed money– expended, the institutions charged with breathing life into a flat lining global economy have few weapons to draw on. The global economy is on a hair trigger.
An economic recovery is about confidence. The concern about the recovery remaining fragile must have increased, but even if the market is overreacting, the downturn in stock prices suggests there’s a little more to it. Where commodity producers (Oil, Mining, Steel) lead, other businesses often follow.
At best, 2016 will be a bumpy year marked by modest growth and market turbulence. But, in private, many are more pessimistic. The unspoken fear is that 2016 could turn into another descent similar to that in 2008.