Do We Really Need to Worry About a Recession in 2020?

Published December 30th, 2019 - 10:08 GMT
Do We Really Need to Worry About a Recession in 2020? (Shutterstock)
The recession danger that was looming very closely at the beginning of 2019 has remarkably decreased, but it's still there (Shutterstock)

With the new year approaching, financial strategists and businesses will be looking to make sound judgments amid speculations of a major financial disaster. It is no secret that the world has been trying to make predictions of potential global recessions, in order to avoid the huge losses markets witnessed during the 2008 financial crisis, when markets crashed without warning.

Ever since the 2008 crisis, which was considered the worst financial shock since the great depression of 1928, analysts have been hinting at a new financial crisis, even though economists have repeatedly failed to predict most recessions throughout history.

In September 2019, the UN warned that “weaker growth in both advanced and developing countries means the possibility of a global recession in 2020 represents a clear and imminent danger.”

But, what constitutes this fear?

The US Economy is at a Historic High

Economic indicators from the US appear to be more positive than the rest of the world, especially with a deescalating tone of the US-China trade war, and the upcoming United States-Mexico-Canada Agreement (USMCA) that is expected to replace the North American Free Trade Agreement (NAFTA).

Unemployment rates in the US have reached a 50-year low at 3.5%, which could be a sign of an economy at its highest peak. These figures can strengthen investors' hopes of a lucrative financial year, which in turn maintains market stability.

Department stores also reported strong holiday sales by the end of 2019, with Amazon expecting to have an 18.7% rise in its fourth-quarter sales, a positive sign that consumers retain purchasing power. 

Yet, reports have shown that the US economy, although quite strong, is heading toward a slowing growth, with the third quarter of 2019 marking the first time since the final quarter of 2018 in which the US economy has grown at a rate slower than 2%, according to a CNN Business report published in October 2019.

Additionally, the Federal Open Market Committee expected in its December 2019 meeting that the US GDP per capita growth will slow from 2.2% in 2019 to 2% in 2020. These indicators pose a very direct impact on consumers' spending habits, which drives more than two-thirds of the US economy.

Since 2020 is an important election year in the US, President Donald Trump and his administration are expected to exert every effort to keep the US economy as strong as possible, which could mean fewer surprising decisions and a more stable economic landscape.

The US numbers do not necessarily suggest a recession just yet, but the increasingly weakened economy around the world on the other hand could be cause for concern. 

Relief in UK Markets Post Elections

In the UK, the numbers are less impressive than they are in the US. According to a report published by the Guardian in December 2019, the UK economy is facing its weakest growth outside recession since the World War II, which is attributed to the uncertainty generated by Brexit and the snap elections.

Yet, the Guardian’s analysts noted a surge in the stock market following the conservatives’ landslide win in the latest elections in December 2019, which is expected to stabilize the Brexit process and consequently downgrade the looming recession danger.

Europe’s Slowest Growth Since 2013

In Europe the situation appears to be slightly bleaker.

The International Monetary Fund (IMF)'s latest Regional Economic Outlook report anticipated that the lowest growth rate of real GDP for 2020 is expected to grow at its lowest rate since 2013.

The report added that “Asia’s capital expenditure and consumer durables slowdown will likely continue to weigh on Europe’s exports and growth as the region is a large exporter of capital goods and transport equipment.”

What Could Prompt a Recession in 2020?

The global trade wars, or disagreements in the best cases, seem to be harder to predict, whether in terms of nature or impact, but unexpected economic confrontation could easily trigger strong volatility in the markets.

Also, investors' fears following any detrimental world event, like terrorist attacks or mass protests, could wreak havoc on markets and cause financial instability.

Despite several concerning indicators in major global markets, the recession danger that was looming very closely at the beginning of 2019, has for a variety of reasons decreased. 

But with the memory of the 2008 crisis still fresh, risk managers and business strategists are treading cautiously before making major financial decisions in the new year. 

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