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Trade wars underscore recession risk: economist

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Trade wars underscore recession risk: economist

Key Biscayne, Florida — Although global economies are booming, the ongoing trade wars, especially between the US and China, puts economies at much higher risk if they plunge into recession, an economics professor warned Wednesday during a presentation at the American Copper Council Fall Meeting.

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"If trade wars create recession, the world has fewer tools to get out of it than what we had in 2008," said Alex Horenstein, an assistant professor of economics at the University of Miami, noting that the situation makes an otherwise robust economic picture somewhat fragile.

"We have to follow very closely the evolution of the trade wars," he said.

Horenstein said a mix of economic conditions in 2018 would make it a much tougher road out of an economic recession, compared with the economic climate that existed when the 2008 financial crisis hit.

First, he said, unemployment rates are globally slow, making future economic growth more difficult. "The world is fully employed," he said.

What is more, interest rates are globally slow, which in turn limits monetary policy options, such as stimulus measures like government bond-buying, Horenstein noted.

Another factor limiting fiscal policy in the current global economy is the fact that government deficits are high in major economies, including the US. The debt problem is particularly pronounced in n Latin America, he noted. Brazil, for example, currently has an 88% debt-to-GDP ratio, Horenstein said.

But while the risk of the trade war with China overshadows the market, the overall global economic picture is one of continued growth, Horenstein said.

Asia will see the biggest economic growth in 2019, he said, although China's growth has been slowing since 2010, partly because of unemployment levels below 5%.

India, on the other hand, is expected to grow 7% in each of next five years, with the rest of the world averaging yearly growth of roughly 4%.

Horenstein said the biggest risk currently to global economies is if China slows down more than expected. -- Laura Gilcrest, laura.gilcrest@spglobal.com

-- Edited by Valarie Jackson, newsdesk@spglobal.com