Global recession

Jonathon Poskitt, Director, Global Sales Forecasts

19 September 2019

The spectre of global economic recession

Attending Oxford Economics’ Global Outlook Conference yesterday, the focus of the day revolved around the risks of economic slowdown turning into recession. It must be noted that, at a global level, a recession can be viewed as global GDP growth slipping below 2%*. Bearing this in mind, with global growth of 2.5% now pencilled in for 2019, well below the 3% average seen over the preceding five years, we are certainly heading towards stall speed.

Moreover, the risks appear finely balanced. Manufacturing is, in effect, already in recession (the auto sector can certainly attest to that), global trade has entered its first contractionary phase since the end of last decade, and there are growing concerns about the negative yield curve in the US.

More important from an economic growth standpoint, though, is the services sector, which is larger in GDP terms than manufacturing, investment and trade combined. Here, at least, the picture looks somewhat rosier. Household spending has been holding up, though how long-lived this will be potentially depends on the health of the labour market, where business pessimism could begin to bite. To a large extent, whether the economy slips into recession depends on households’ confidence.

“Thankfully, the oil supply disruption and price jump following the drone attacks appears temporary, although these events remind us that an oil price spike has tended to precede a global economic downturn.”

What then are the chances of a global economic recession in 2020? Oxford Economics puts this at around a one-in-three chance. While those odds could, of course, be somewhat worse, the global economy is certainly more vulnerable to major shocks currently, and events like those in Saudi Arabia at the weekend only highlight that the risks to the economic outlook are not confined, for example, to trade protectionism or the health of the Chinese economy. Thankfully, the oil supply disruption and price jump following the drone attacks appears temporary, although these events remind us that an oil price spike has tended to precede a global economic downturn. In terms of the broader economy, it looks like we could well be in for a bumpy ride for at least the next 18 months, with the emphasis shifting from monetary towards fiscal policy to help support growth.

At present, our Light Vehicle forecast for 2020 sees global sales, excluding China, flat year-on-year – include China and we are up by just under 1% to only 92 million units. That is expected to follow two years of contraction in the industry. The chances of this running into a third year are significant, however. Throw in an escalation of instability in the Middle East, or a more pronounced ramp-up of the US-China trade war and the possibility of global sales volumes falling for a third year running becomes more of a likelihood.

* This 2% level captures population expansion and contrasts with the national-level definition of a recession being two consecutive quarters of negative GDP growth.