US Economy Could Be Hit By A ‘Shallow Recession’, Says CLSA

A “shallow recession” is likely to hit the United States, opined Eric Fishwick, chief economist at Hong Kong-based investment bank CLSA.

Fishwick also said that a slowing global economy and an escalating trade dispute between the US and China is weighing down on the global economy and as such, the world trade could turn negative next year.

He said that if there is a contraction in global growth in 2020, it would be the first sustained period of negative growth since the global financial crisis of 2007 and 2008.

“We are already at the weakest point in terms of global trade and global manufacturing since 2010, which has happened as a result of the US slowing from about 3.5 per cent to 2 per cent growth,” Fishwick said. “My fear is the US will continue to slow.”

He said that a weakening in manufacturing activity primarily in Europe and China, together with a drop at the start of the  third quarter of 2018 in US import demand and manufacturing indicators has hit global trade.

“Given the weakness of the rest of the world, the US needs to grow at more than 3 per cent to keep global trade and global manufacturing conditions relatively healthy,” Fishwick said.

The trade war between the US and China has been ongoing for more than a year now as the US President Donald Trump attempts to reverse decades old trade and business policies of China. The trade war has resulted in both the US and China imposing trade tariffs on each other’s goods worth billions of dollars. In fact, all of Chinese exports into the US worth about $550 billion annually have been brought under tariff by the Trump administration. The trade war has roiled world financial markets and upended supply chains of multinationals along with slowing down of global trade.

According to a report from the Bank of America Merrill Lynch on Monday, the rising trade tensions has resulted in a hit to Chinese exports in August with a 1 per cent drop which was below market expectations.

“With wider coverage and higher levels of US tariffs to be imposed soon, we expect a more negative impact on exports, especially after front-loaded orders fade in [first quarter 2020],” Bank of America economists Helen Qiao and Xiaojia Zhi, said in a research note. “Additionally, exports to non-US destinations will likely weaken on the back of a dimmer global growth outlook.”

The US economy is expected to grow at 2.5 per cent in 2019 according to the CLSA, which is part of Citic Securities, while there is also prediction of the growth in gross domestic product slowing down to 1 per cent in 2020 because of a weakening of business sentiment and corporate profits. Fishwick said that export driven economies especially in Asia as well as trade will be hurt by that.

“We do have to realize that the trade war is causing traditional trade patterns to realign. US-China trade has slowed more aggressively than China-Europe trade, even though the US is healthier,” Fishwick said. “That is affecting the supply chain across the region. We’ve often seen because of the size of China’s supply chain across the Pacific Rim that shocks to manufacturing have a greater impact on smaller countries than they do in China because China is able to compensate for that shock more effectively.”

(Adapted from SCMP.com)

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Categories: Economy & Finance, Geopolitics, Regulations & Legal, Strategy, Sustainability, Uncategorized

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