US-China trade war escalation seen moving global recession risk closer to tipping point
- Bank of America Merrill Lynch survey shows 43 per cent of respondents expect a US recession in 2020 while Morgan Stanley economists predict global growth to average 2.7 per cent in coming quarters
- Economists say tit-for-tat tariff increases point to no deal in the short term and disintegration of US-China relationship
The latest tit-for-tat trade tariff increases by China and the US on Friday are a further sign that a near-term resolution of the trade war is unlikely, pushing the global economy closer to tipping into a severe slowdown, with a recession in America and a sharper-than-expected slowdown in the mainland.
Many analysts believe the global economy can avoid a recession next year, helped by more aggressive policy responses from the US and China that would include greater monetary easing from the US Federal Reserve and the People’s Bank of China.
But such measures would only be defensive in nature, unable to fully offset the growth drag as trade uncertainties continue to weigh on corporate investment and even spread to consumer spending.
In a Bank of America Merrill Lynch survey, 43 per cent of the 273 respondents interviewed saw 2020 as a likely year for a recession in the US, compared with 29 per cent citing 2021, 21 per cent expecting “after 2021” and 4 per cent picking 2019. The survey took place between June 20 and July 24, with it likely that pessimism has increased since then given the continued escalation of the trade war, said John Shin, Bank of America’s currency strategist.
Morgan Stanley analysts, including Robin Xing Ziqiang, said the current trade uncertainty could bring the global economy closer to a tipping point where corporate sector sentiment would take a severe hit, with companies pulling back sharply on capital expenditure and cutting more jobs.