Could Trade Wars Cause the Next Recession?
Could Trade Wars Cause the Next Recession


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A forecast from Goldman Sachs says the ongoing trade war between China and the U.S.  is “kicking the tires” of growth, but not likely to start another recession, according to Business Insider. 

“Barring a large further escalation, we do not expect the trade war to cause a recession,” Daan Struyven and his team of economists wrote in a research note.

Goldman Sachs predicted that the trade war would lower U.S. growth by about a quarter of a percentage point or 0.25%—much lower than the 2% decline during the 2008-09 financial crisis. 

To combat recession fears, the Federal Reserve has slashed interest rates twice so far in 2019. The Fed cut rates in September to a target range of 1.75% to 2%. The Fed said in its policy statement that it was cutting rates “in light of the implications of global developments for the economic outlook as well as muted inflation pressures.”

“Starting with overall economic policy uncertainty, there is a clear negative correlation with capital spending,” Goldman Sachs wrote in its forecast. “However, the link weakens substantially when we take into account the FCI and company capex expectations (which both still signal a decent outlook).” 

The Council of Foreign Relations earlier this month projected that a recession could occur as soon as the 2020 Presidential Election. 

The report references the years preceding the 2008 financial crisis, which saw a rising gap in the growth in home prices and household income, and a “parallel dynamic is playing out” today.

“In 2018, as in 2005, housing-price growth began falling rapidly, with significant price drops occurring in several major markets … The trend-line in existing-home sales growth has also been down since 2015, tipping into negative territory at the start of last year. Similar drops have preceded nearly every recession since 1970,” the report states. 

Additionally, the report says that if these trends continue the economy should expect to see falls in home prices—possibly beginning by mid-2020—dragging down household spending with a falling economy. 

“Growth has been slowing, with Trump’s tariff war hitting exports. Manufacturing is contracting. Retail sales, excluding autos, have stalled. Consumer confidence is falling,” the report states. 





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