We don’t want to put a dampener on the outlook for 2019 but ….

We wish all our readers a happy and prosperous new year but temper this salutation with a sobering headline from the Washington Post:  Google searches for ‘recession’ highest since 2009

The newspaper was reporting just after Christmas Day on speculation among analysts about whether another recession is looming, at a time when market turmoil was being  driven, at least in part, by the ongoing political chaos in Washington – but:

It’s not just the financial pros who are worried: Data from Google shows that searches for “recession” are currently at their highest level since November of 2009, just a few months after the end of the so-called Great Recession.

Google’s data show the overall volume of searches for a given topic, relative to its peak. In the case of “recession,” searches peaked in January 2008, just after the start of the last recession.

Fair to say, Google’s data show current interest in “recession” as a topic (with a few days of December remaining) was about one-third of what it was in January 2008. The last time there were this many searches was in November 2009.

In absolute terms, the overall number of searches remains relatively small, only about one quarter the volume of searches for Kim Kardashian.

But this week we learn that – according to the results of a survey among top economists surveyed by the American Bankers Association – the chances for a recession are nearly doubling in the next year.

The odds rise from 20 per cent in 2019 to 35 per cent in 2020, according to a poll of 15 chief economists from major North American banks taken in the first week of January.  

“The downside risks have materially increased in recent months,” says ABA Economic Advisory Committee Chairman Robert Dye.

Those risks include financial market volatility, poorer corporate debt quality, cooling global growth and rising home interest rates, adds Dye, chief economist for Comerica Bank.

Despite the pessimism, Dye says the near term outlook is good because more jobs and rising pay should keep consumer spending and confidence elevated.

The economists surveyed are predicting economic growth will come in at 2.1 per cent this year and 1.7 per cent next.

Our “recession” googling threw up two more items of note.

First, in an article headed What Will Cause the Next US Recession?, US economics professor Bradford DeLong says three of the last four US recessions stemmed from unforeseen shocks in financial markets.

Most likely, the next downturn will be no different: the revelation of some underlying weakness will trigger a retrenchment of investment, and the government will fail to pursue counter-cyclical fiscal policy.

The culprit will probably be a sudden, sharp “flight to safety” following the revelation of a fundamental weakness in financial markets. That is the pattern that has been generating downturns since at least 1825, when England’s canal-stock boom collapsed, deLong says.

Today’s near-inverted yield curve, low nominal and real bond yields, and equity values all suggest to him that US financial markets have begun to price in the likelihood of a recession.

Assuming that business investment committees are thinking like investors and speculators, all it will take now to bring on a recession is an event that triggers a retrenchment of investment spending.

Trouble is, if a recession comes anytime soon, the US government will not have the tools to fight it.

The White House and Congress will once again prove inept at deploying fiscal policy as a counter-cyclical stabilizer; and the Fed will not have enough room to provide adequate stimulus through interest-rate cuts. As for more unconventional policies, the Fed most likely will not have the nerve, let alone the power, to pursue such measures.

As a result, for the first time in a decade, Americans and investors cannot rule out a downturn. At a minimum, they must prepare for the possibility of a deep and prolonged recession, which could arrive whenever the next financial shock comes. 

In similar vein, Lawrence H. Summers has written an article headed The right policy as recession looms

He noted that credit spreads have widened considerably, commodity prices have softened, and investors have started demanding higher yields for short-term U.S. 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.

Your optimism is unlikely to be restored by another article  in the Washington Post headed China’s slowdown is the biggest threat to world economy.  

In this, finance writer Matt O’Brien advises:

You shouldn’t worry too much about the big US stock market sell-off. You should worry about China’s instead.

Indeed, while it might not have gotten as much attention, China’s benchmark stock index was, with its 25 percent drop, the world’s worst-performing in 2018. Part of this was because of the fear that President Trump’s nascent trade war might turn into something even more serious, but only a part. More significant than what Washington was doing, you see, was what Beijing was. That’s because, in what has seemingly become an every-other-year tradition in recent years, China’s government has stepped on the economic brakes pretty hard in an attempt to put an end to what looks like some bubbly behavior.

But we did find a nugget of much better news: World Bank top economist expects no recession in Turkey.  

The bank expects Turkey to post 1.6 per cent growth in 2019, 3.0 per cent in 2020 and 4.2 per cent in 2021, according to the latest Global Economic Prospects report released on Tuesday.

We will look for something similarly heartening closer to home…

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