Global economies are showing clear signs of weakness which could lead to a worldwide recession. According to Morgan Stanley, the world economy is going to enter the phase of recession in the next 9 months.
One of the biggest factors that have resulted in a weakened world economy is the growing tension between the two largest economies, the US and China. This has nudged the global economy towards a recession.
There are warning signals coming from all directions including the bond yield curve. The yield curve has typically inverted before the recession and it is now similar to what was seen ahead of the 2008 financial crisis.
According to Morgan Stanley, if the trade war between the two countries continues at this pace then we are soon going to hit a recession. In his words:
“If the trade war further soars via the US again raising tariffs on all goods imported from China to 25%, we would see the global economy entering recession in three quarters.”
He also added that India is still far away from entering the recession period. However, the country is facing a crippling slowdown. Some of the important sectors including the automobile industry are dangerously closed to hit a recession.
India’s economy has declined for three straight quarters and the growth forecast is also not uplifting. Both the core infrastructure and industrial production sectors have faced a decline.
There is a great threat of recession approaching the UK’s economy and some other European countries. Political uncertainty owing to Brexit led its second-quarter GDP to contract, raising fears of an imminent recession.
Other than the rising trade tension, many indicators of worldwide economic health have turned negative since the time the Federal Reserve said that the rate cut was a “mid-cycle adjustment” and not the beginning for a rate cut cycle.
Global central banks have sprung into action amid a global slowdown. India has cut the benchmark policy rates by 35 basis points, Thailand by basis points 25 and New Zealand cut it by 50.
However, the threat of recession in India is yet to be felt. The government and the policymakers cannot completely deny or ignore that they are safe from it. Since the possibility of it happening is quite strong, India should get ready to strengthen its fences instead of wasting time.
