Not all recessions are a crisis, and the next one won’t be as bad as 2008
Recession fears are on the rise in the United States. Memories of the last downturn are exacerbating these worries: The last time America faced a recession was in 2008, as the financial crisis was unfolding. Millions of people lost their jobs, GDP growth plummeted and businesses shut down.
But not all recessions are like that. Sometimes the economy can grow all the way through a recession. In fact, some economists believe the world is in a recession now and most people don’t even realize it.
“By our metrics, we’re in a global growth recession,” said Alessio de Longis, senior portfolio manager at Invesco. “As we enter 2020, growth is slowing and it’s slowing in a synchronized way.”
A growth recession is when the economy grows below trend and decelerates. Trend growth is the average growth rate that sustains unemployment and inflation at a stable level.
The world economy has grown at a trend rate of roughly 3%, de Longis said. In 2018, global GDP grew at a pace of 3.04%, according to the World Bank. The International Monetary Fund predicted earlier this month that the world’s economy will grow by 3% this year. But that’s just a forecast: The economy could currently be in worse shape, putting the world in a growth recession.
De Longis isn’t alone in his assessment. Charles Schwab Chief Investment Strategist Liz Ann Sonders said the world was in a manufacturing recession on CNN Business’ “Markets Now” live show in July.
The recent downturn in America’s trade war-battered manufacturing sector has soured the outlook for the global economy. It suggests economic contagion is spreading from elsewhere in the world to the United States, which is widely considered the healthiest major economy in the world.
Strong consumer spending has helped the US economy stay on course, but growth is slowing in the United States too. And over the summer, worries about trade conflicts started to hurt consumer sentiment, which could eventually hurt consumer spending.
For the United States, a global growth recession will probably mean sluggish growth, rather than millions of lost jobs like the last recession 10 years ago did. A growth recession would be nothing like 2008, when America entered a so-called technical recession: at least two consecutive quarters of a shrinking economy. The US economy is far away from that.
Third quarter GDP growth is expected to come in at 1.8%, according to the Federal Reserve Bank of Atlanta. The New York Fed is even forecasting 2% GDP growth between August and October, and 1.3% in the fourth quarter.
Things in Europe appear to be much more bleak, and the odds for a recession there are much higher. Europe’s export-reliant economies are at the center of trade and slowdown worries. The European Union’s fourth largest economy, Italy, was in a technical recession in the second half of 2018, and its largest economy, Germany, has seen its economic growth continuously edging lower this year.
