Over the last few days, economists at both Morgan Stanley and Goldman Sachs have warned that the chances of a recession have increased as the ongoing trade wars are going to have a larger impact on the global economy than first thought.
At Morgan Stanley, their chief economist, Chetan Ahya, said that the firm believes a global recession will come in about 9 months if the trade disputes continue to escalate, with the Trump administration raising tariffs top 25% ‘on all imports from China for 4-6 months’ resulting in a ‘the global economy entering recession in three quarters’ he said in a note. Ahya went on to say ‘About two-thirds of goods tariffed in this round are consumer goods, which could lead to a more pronounced impact on the US as compared to earlier tranches’. He added ‘Trade tensions have pushed corporate confidence and global growth to multi-year lows’. He also believes that central banks do not have the firepower to head off the upcoming crisis saying ‘Global central banks, in particular, the Fed and ECB, will provide additional monetary policy support’ however, ‘these measures, while helpful in containing downside risks, will not be enough to drive a recovery until trade policy uncertainty dissipates’.
Over at Goldman Sachs, Jan Hatzius, their chief U.S. economist, also sent a note to clients saying roughly the same thing. ‘We have increased our estimate of the growth impact of the trade war’ he wrote, adding ‘Financial conditions, policy uncertainty, business sentiment and supply chain distribution will all contribute to lower-than-expected growth as a result of the trade war’. At the same time, Goldman Sachs lowered its fourth-quarter growth forecast to 1.8% and predicted firms will lower investments amid the uncertainty.
We also note that Lawrence Summers, the ex-Treasury Secretary, is quoted as saying that global economies are at their riskiest since the financial crisis a decade ago, because of the ‘sadomasochistic and foolish trade conflict’.
And, what were you doing in 1985? Still at school, university, or maybe starting to make your way in the big wide world (or maybe not even born, it was 34 years ago after all). Well, that was the last time GBPUSD traded at its current level. At the time of writing it was currently trading at 1.2064. You never know mullets, spandex and legs warmers might even come back into fashion.