Global recession? Likely now. 50% probability.

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Recession is when the economy has negative growth. Technical recession is when the country has two consecutive quarters of negative growth. Global recession happens when the confidence with the economy in most countries drop and everyone starts to pull back from spending. Businesses stops investing into production since everyone is not spending. When businesses start to do badly, they will retrench workers and these workers will then have no money to spend. The cycle continues until a flicker of confidence comes back after a while. So, is a global recession coming? As per Moody’s Analytics, the odds for a global recession is now increased by 40-50 percent. The reason? Read on.

Article in thestar.com.my . Moody’s Analytics says that due to the US-China trade war, the fears for a global recession within the next 12 – 18 months is increased by 40-50 percent. It said this about the new tariffs from US on Chinese goods beginning 1st September. “This will bring the total value of goods subject to tariffs to around US$550bil, broadly equivalent to total imports from China into the US. The additional tariff on China would put the total effective US tariff rate at 5.4%, compared with 4.4% today and 1.5% seen at the end of 2017.

It said that these additional tariffs will hurt the US economy more than China. These higher prices will result in inflation and weakened consumer confidence. When consumer spending goes down, the recession risks rise. With regards to how it will be affecting the Asia-Pacific region, it said, “Thus, the new round of tariffs will have a milder impact on the APAC region. In reality, some electronic products such as mobile phones are part of this new round of tariffs, but electronics were a much larger share of the previous US$250bil of goods already subject to tariffs.”

As for response from China, it said, “China has shown that its nontariff retaliation carries ferocity, and we expect this round will not be any different. Beijing’s war chest offers many options. The most likely act will be to release the ‘Unreliable Entity List’ that would exclude US businesses from engaging with Chinese firms. This option was first floated on May 31, by the Ministry of Commerce. A potential list emerged on July 26, possibly in anticipation of tariffs being ramped up on the US side.” The article is a comprehensive one. Please refer to it here . Article in thestar.com.my

No one can guarantee that Malaysia will not face any effects from this trade war which is set to be prolonged. If the US is not going to back down, there’s also no way that China will agree to everything the US demands. Perhaps the situation may persist for a while, at least until the US Presidential election which is coming in 2020. Let’s not speculate on who may win for now. Let’s see what happens on 1st September 2019. As for Malaysia, both China and the US are our 2nd and 3rd largest trading partners respectively. So, yes, if both economies slow down, Malaysia will definitely be affected too. Happy following.

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<Featured Image is courtesy of Stock Photos from AlexLMX>

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