Sep 20, 2019

Economists see sustained low growth, but no recession

Illustration: Aïda Amer/Axios

The Organisation for Economic Co-operation and Development (OECD) became the latest international economic organization to cut its global growth forecast, announcing Thursday that it's dropping expected growth to 2.9% this year, the slowest since the financial crisis.

Why it matters: The designation follows similar moves from the International Monetary Fund, World Bank and a slew of central banks and ratings agencies that slashed their estimations for the world's economic growth this year as data continues to worsen.

  • "We're heading slowly towards lower growth and the biggest risk that we see to these projections ... is that we remain stuck, engulfed at a very low level of growth," OECD chief economist Laurence Boone said in an interview with Bloomberg. "That is largely due to the uncertainty that has been created by trade conflicts all over the world."

Yes, but: While the direction of economic growth has been clearly negative, none of the organizations are expecting a recession, this year or next.

  • In fact, from central banks to ratings agencies and intergovernmental orgs, top economists remain steadfast in their insistence that they do not expect a recession for the U.S. or global economy.

What they're saying: Even projections by mainstream economists on the low-end of the spectrum show the U.S. "comfortably" avoiding a recession and China continuing to see GDP growth around 6%.

  • "That's why we're not forecasting any kind of global recession," Tony Stringer, COO of Fitch's global sovereigns group, told Axios on the sidelines of the ratings agency's Global Sovereign Conference. "Obviously if either of those really fell off a cliff that's when you get a different paradigm."

Between the lines: The key, Stringer said, is consumption, and U.S. consumers have shown it in droves over the last few months. Retail sales, consumer confidence and jobs data metrics remained at high levels, even as manufacturing, investment and CEO confidence stumbled.

Some economists are even bullish on the state of things.

  • "There is no denying that elevated uncertainty is bad for investment, but our tracking of global fixed capital formation finds little sign of lasting damage, at least at this stage," Institute of International Finance economists Robin Brooks and Jonathan Fortun said in a recent note.
  • "If we combine this relatively benign global growth picture with material easing from key central banks, it paints a picture that arguably looks quite constructive for risk assets."

Be smart: Economists almost never see recessions coming. Ahead of the global financial crisis, economic leaders from the Fed, Treasury Department and major ratings agencies gave no warning of what was to come.

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Illustration: Aïda Amer/Axios

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A synchronized global slowdown

Data: IMF, IIF, OECD and World Bank; Chart: Axios Visuals

The Institute of International Finance on Thursday lowered its growth forecast for 2019, the latest in a series of downward revisions from international economic organizations since the beginning of last year.

The big picture: "The global economy is now in a synchronized slowdown," incoming IMF managing director Kristalina Georgieva said at a recent news conference.

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