Marty Krocak operates his tractor as he plants soybeans in one of his fields on June 7, 2019, in Montgomery, Minnesota. | Ricky Carioti/The Washington Post via Getty ImagesJapan, Germany, the UK, and Brazil are seeing signs of trouble too.
Fears of another global economic slowdown are rising as reliable data indicates the United States — the world’s largest economy — may be headed for another recession.
That’s bad enough for global markets, but what’s worse is that many of the world’s other top economies may also be headed for troubling downturns.
Japan faces a recession, and it’s recently entered into a nasty trade dispute with South Korea. The turmoil over Brexit has partly led the UK’s economy to shrink in the second quarter.
Growth has essentially stopped in Italy, and a political crisis there doesn’t inspire much confidence that a rebound will happen soon. Germany’s economy declined in the three months before June, according to new numbers, a troubling sign for the world’s fourth-largest market.
And there’s more: Months of protests in Hong Kong have brought the financial hub’s economy to a standstill, and the looming threat of a possible Chinese military intervention to quell the unrest isn’t making the situation any better.
Singapore, another Asian economic engine, is also on the brink of recession. Argentina just went through one of the worst stock market crashes in decades after an allegedly corrupt politician nears power once more. Brazil and Mexico, two leaders of Central and South America’s economies, are expected to perform weakly this year.
On top of it all, China’s growth rate has slowed due in large part to the trade war launched by President Donald Trump.
Put it all together and the world’s economic outlook looks pretty bleak. The International Monetary Fund, a world body that helps keep the global economy stable, also sees it that way. Last month, it cut its projection for global growth to 3.2 percent, the lowest rate since 2009.
Axios has deemed this moment the “Synchronized Slump,” and it could mean trouble for your wallet over the next few years.
Why so many countries may be headed for recession
It’s possible that some, or even all, of these countries turn around their economic fortunes soon. But experts say two major trends have caused the current slowdown — and there’s reason to believe they’ll persist in the coming years.
The first has to do with Trump’s signature economic policy.
“A major reason for the elevated risk of recession,” says the American Enterprise Institute’s economic policy studies director, Michael Strain, “is President Trump’s deeply misguided trade war. If the president were to reach a face-saving deal with Chinese President Xi Jinping, the risk of recession would drop considerably.”
The US placed 25 percent tariffs on $250 billion worth of Chinese products in May, and plans to impose 10 percent tariffs on the remaining $300 billion in goods that Beijing sends to America by mid-December. Those actions have harmed one of the most important — if not the most important — trade relationship in the world.
Numbers from this week show that China’s economy grew by 4.8 percent in July, a high number for many countries but Beijing’s lowest rate since 2002. In the US, meanwhile, the trade war is severely hitting farmers as China has stopped buying as many agricultural products from America in retaliation for Trump’s tariffs. Yet the farming community still seems firmly behind Trump, giving him little incentive to reverse course.
But the effects of the trade war go beyond just the US and China’s bilateral trade relationship. For instance, Germany relies heavily on exports, primarily to the US and China, and is now struggling to sell to those nations as their economies slow.
Now “the German economy is teetering on the edge of recession,” Andrew Kenningham, chief Europe economist at Capital Economics, told CNN on Wednesday.
The second reason, experts say, is that many nations are facing immense political turmoil at home.
Nationalist politics in Britain, Brazil, and Italy have caused long-term, complicated political crises that allow little time to manage economic affairs adequately.
The poster child right now is the UK, which may be headed for a no-deal Brexit that would negatively impact the country’s economy, including potentially causing half of the nation’s farms to fail.
In Brazil, populist President Jair Bolsonaro hasn’t focused on needed reforms to its pension and tax systems that many in the country agree would help it bounce back from its 2015 recession.
“The president’s seeming lack of interest in helping achieve these reforms have affected business confidence, which, in turn, undercuts economic growth,” says Jana Nelson, a Latin America expert at the Wilson Center think tank in Washington.
Italy is in the middle of a political crisis due to far-right Deputy Prime Minister Matteo Salvini, who is planning to call a no-confidence vote in the government and push for early elections. Experts say he doesn’t have enough political support to make it happen, but his League party still remains highly influential, and its efforts to bring down the current government is leaving little room to deal with the nation’s economic challenges.
But nationalist politics isn’t the only thing plaguing certain countries. In some cases, the problem is “self-inflicted political wounds” brought on by incompetence, says Nelson.
Take the case of Mexico. “Many of the early decisions of the [Andrés Manuel] López Obrador administration, such as canceling major infrastructure projects and all clean energy auctions, caused multinational companies to reevaluate their investment plans,” she explains. “Mass firing and forced salary cuts of government employees over the last eight months have not only cut the fat but the meat and the bones of the new administration, resulting in an unexpected decrease in government expenditure and the lowest job creation numbers in six years.”
And in Argentina, a surprising electoral result has sparked political chaos. Last weekend, the country’s president lost a primary vote to his left-wing challenger — whose running mate is former President Cristina Fernández de Kirchner, who has been indicted in 11 corruption cases. Argentina’s local stock market dropped by 48 percent on Monday following the vote, the second-largest single-day drop for any stock market in the world since 1950.
There’s more, but you get the idea.
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