Economies globally are showing signs of acute weakness and the next stage could be a worldwide recession, if Morgan Stanley is to be believed, in nine months from now.
Escalation in trade tension between the two largest economies — US and China — is the chief factor nudging the world economy towards a recession.
Warning signals are also coming via other reliable indicators of recession; the bond yield curve.
The yield curve has typically inverted before recession and it is now nearly similar to what was seen ahead of the 2008 financial crises.
Morgan Stanley believes if the trade war further soars via US again raising tariffs on all goods imported from China to 25 per cent, “we would see the global economy entering recession in three quarters”. India, however, is not close to a recession, but is witnessing a crippling slowdown. Some sectors like the automobile industry are dangerously close to recession.
India’s economy has declined for three straight quarters and the growth forecast are also not uplifting. Both industrial production and core infrastructure sectors have witnessed a decline.
A far greater threat of recession hangs over UK’s economy and other European economies. Political uncertainty owing to Brexit led its second quarter GDP to contract, raising fears of an imminent recession.
Besides, the soaring trade tension, several indicators of global economic health have turned negative since the Federal Reserve said that the rate cut was merely a “mid-cycle adjustment” and not necessary the beginning for a rate cut cycle.
Global central banks have sprung into action amid a global slowdown. India cut the benchmark policy rates by an conventional 35 basis points, New Zealand’s cut it by 50 and Thailand also by a surprising 25.
Although, the threat of a recession in India is not imminent, the government and the policy makers cannot ignore the possibility of it and not begin to strengthen the fences.