New IMF Head: Recession Could Be On The Way

Brexit, geopolitical fissures and trade conflicts are threatening the global economy, Kristalina Georgieva, the new managing director of the International Monetary Fund, said in a Tuesday speech.

Trade growth is nearly flat, and tensions have soured market sentiment, deterred investment and stunted manufacturing activity around the world. Economic activity is slowing in advanced economies and some of the biggest emerging markets, and since 2017, the global economy has shifted from about 75% of nations experiencing accelerated GDP growth to about 90% suffering decelerated growth.

This year, the growth rate is expected to strike its lowest point since 2010.

What Lies Ahead

The IMF expects economic pain to spread to as yet-untouched countries, service industries and consumers.

“The precarious outlook presents challenges for countries already facing difficulties — including some of the Fund’s program countries,” Georgieva said.

U.S. indicators corroborate this outlook. Since May, the three-month Treasury yield has exceeded the 10-year yield. An “inverted yield curve” sustained for three months generally heralds a recession.

“It’s not normal. It’s something that foreshadows bad times,” Duke University professor Harvey Campbell said in an interview with “The Compound.”

Recession concerns aside, global conditions could lead to long-term disruption, Georgieva said. 

“Even if growth picks up in 2020, the current rifts could lead to changes that last a generation — broken supply chains, siloed trade sectors, a ‘digital Berlin Wall’ that forces countries to choose between technology systems.”  

What To Watch For

The fate of the economy lies precariously in the hands of various market players, including the U.S. government.

President Donald Trump could accelerate a recession by imposing tariffs on all remaining Chinese imports, according to some economists. 

At the same time, the Federal Reserve could stave off threats with another round of interest rate cuts.

Fed Chairman Jerome Powell is expected to discuss the economic outlook at a Tuesday meeting with the National Association for Business Economics.

Harvey said U.S. businesses could shield themselves from the recession — and perhaps preserve slow growth — by delaying planned spending.

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