According to the Research Department at BBVA, the balance of risks to the global economic outlook continues to be tilted to the downside against a backdrop of trade tensions and increasing probability of a recession in the US in the short-to-medium term. The see the current context of growth deceleration, low inflation and high policy uncertainty, as well as the dovish stance adopted by the main central banks, reflecting a worsening of the global outlook.
Key Quotes:
“A full-scale trade war remains in the center of the stage despite the recent truce in China-US disputes. The probability of a “no deal” is not negligible given the unpredictability of these negotiations and the huge distance between the two sides on issues like technology, subsidies, charged tariffs or enforcement methods. Threats on auto industry and the position of the US against Mexico are also potential sources of risk.”
“We highlight the relevance of a cyclical recession in the US and a disorderly deleveraging in China as risk scenarios. In the case of the US, economic indicators continue to surprise on the downside, edging up the probability of recession one year ahead amidst mounting sources of concern (trade, elections, corporate leverage). In China, policy easing to face trade woes threatens to increase existing financial vulnerabilities in the medium-to-long term (debt overhang, housing market, distortions in credit allocation).”
“The risk of a broad resurface of debt sustainability concerns in the Eurozone continues on the table, with Italy in the spotlight, in a context of lack of substantial advances in terms of fiscal integration, banking union and structural reforms to promote the economic growth in the medium term. The resolution of Brexit conflict is also an issue given its implications for the single market and the UK economy.”
“A protracted stagnation of Developed Economies continues to be a structural risk event, even with a certain upside bias according to the recent economic dynamics (in both growth and inflation).”
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