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As IMF sees global recession on horizon, here are the signs to look out for

In the April 2009 study, its economists decided that declining per-capita GDP was the main indicator to monitor recession

Simon Kennedy | Bloomberg 

Kristalina Georgieva, new IMF managing director
Kristalina Georgieva, new IMF managing director

The hottest topic in global financial markets is whether the world is heading for recession, but defining such a slump is easier said than done.

The marker for most developed economies is two successive quarters of contracting In the U.S., it’s the lagging decision of a panel of academics formed by the National Bureau of Economic Research.

Calling a for the whole world is a lot harder. Once it was a case of tracking powerhouses such as the U.S. and Germany, but emerging markets now account for a bigger share of global and a slump by them to even moderate expansion rates is a problem. China, for example, would be ringing alarm bells well before its actually started shrinking.

A decade ago, when the world was last in a downturn, the Monetary Fund sought to redefine a global having previously used growth beneath 3 per cent as benchmark.

In the April 2009 study, its economists decided that declining per-capita was the main indicator to monitor along with the global rates for unemployment, trade, industrial production and oil demand.

Applying such criteria points to global recessions in 1975, 1982, 1991 and 2009, the latter being the worst since the Great Depression. Some economists include 2001.

So what’s the current outlook? While the is this week set to cut its forecasts for global growth this year from 3.2 per cent, which is already the weakest since 2009, it’s not declaring a is on the horizon. Managing Director for now prefers to warn of a “synchronized slowdown.”

Economists at Danske Bank A/S have though developed a traffic-light indicator based on the IMF’s five measures. As recently as the first half of 2018, all was fine with every metric on “green.” But as of the second quarter, falling trade is flashing “red” and the others “yellow.”

That’s enough for them to warn of a 30 per cent chance of a global recession over the next two years.

“While the momentum in the has clearly slowed over the recent year, we still think the risk of a global recession is only about 30 per cent over the next two years,” said Jakob Ekholdt Christensen, Danske’s head of macro. “One reason is that we still see scope for central banks and national governments to stimulate their economies to mitigate a possible further downturn. The biggest risk to the in our view is a further escalation of the trade war between the U.S. and China.”

First Published: Fri, October 11 2019. 08:02 IST