‘Awfully high’ risks of a global recession in the next 12-18 months, Moody’s chief economist says



Yen Nee Lee | CNBC

  • Avoiding a recession requires many factors to “stick to script” at the same time, says Mark Zandi, chief economist of Moody’s Analytics.
  • That includes U.S. President Donald Trump not escalating the tariff war with China, the U.K. finding a resolution to Brexit and central banks continuing their monetary stimulus, he says.
  • The International Monetary Fund, in its World Economic Outlook report released on Tuesday, cut its forecast for global growth once again.

There’s an “uncomfortably high” chance that a recession could hit the global economy in the next 12-18 months — and policymakers may not be able to reverse that course, an economist said on Wednesday.

“I think risks are awfully high that if something doesn’t stick to script then we do have a recession,” said Mark Zandi, chief economist of Moody’s Analytics. “I’ll say this also: Even if we don’t have a recession over the next 12-18 months, I think it’s pretty clear that we’re going to have a much weaker economy.”

Avoiding a slowdown in economic activity requires many factors to “stick to script” at the same time, he said. That includes U.S. President Donald Trump not escalating the tariff war with China, the U.K. finding a resolution to Brexit and central banks continuing their monetary stimulus, Zandi explained.

“I think high, uncomfortably high,” he told CNBC’s “Squawk Box Asia” when asked about the chances of a global economic recession.

Other economists appeared less worried about a recession, but shared Zandi’s sentiment that growth would continue to weaken.

Eswar Prasad, a professor at Cornell University, said consumer spending has helped support growth in several economies — even as momentum falters in other sectors. But that’s not sustainable, he added.

“Consumers and households cannot be counted on to keep growth going. So, really, the key is to come up with a set of policies that are going to spur a revival of business and consumer confidence, and end up boosting investments,” he told CNBC’s “Street Signs Asia” on Wednesday.


Monetary and fiscal support

On Tuesday, the International Monetary Fund made a downward revision to global growth.

In its World Economic Outlook report, the IMF forecast that the global economy will grow 3% this year and 3.4% in 2020. That’s lower than the 3.2% and 3.5% — for 2019 and 2020, respectively — that the fund projected in July.

The fund blamed the “subdued growth” partly on rising trade barriers and heightened geopolitical tensions, and called for a “balanced” way to fend off those risks.

“Monetary policy cannot be the only game in town and should be coupled with fiscal support where fiscal space is available and where policy is not already too expansionary,” the IMF said.

Zandi agreed that governments should increase spending to support the economy, but said many major economies would not go down that route.

He explained that with the two major political factions in the U.S. battling an impeachment inquiry into Trump, it doesn’t seem likely that Congress would pass any plans to cut taxes. In Europe, Germany may have fiscal space to spend but the government could find it hard to do so legislatively, he said.

“This doesn’t lend confidence. The central banks are running out of room, we need fiscal policymakers to step up but I don’t think, at this point, it’s clear where the political will for doing that is going to come from,” he said.

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