Recession likely in next 2 years
Slowing growth in the US, China and Europe's problems add to economic worries
YOU might say a person is fundamentally healthy so long as you cannot yet say what will cause his death. Likewise, an economic recovery is healthy if it is not clear what will cause the next recession. By this standard, the recovery from the 2008 financial crisis, though disappointingly slow, has been healthy for most of the past decade.
This is now in serious doubt. Paul Samuelson's famous quip that the stock market has predicted nine of the past five recessions cautions against overreacting to recent market moves. But credit spreads have widened considerably, commodity prices have softened, and investors have started demanding higher yields for short-term US bonds than for those with longer terms. Unlike equity markets, such "yield curve inversions" have not historically tended to produce false recession predictions. The overall judgment of financial markets is that a recession is significantly more likely than not in the next two years.
Real economic indicators for the world's largest economies - China and the United States - also suggest cause for concern. Almost every Chinese indicator in the past few months has come in below expectations. Beijing now sees the need for stimulus measures if they are to credibly report the attainment of growth targets.
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