The state of the global economy

The state of the global economy
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Some American economy watchers worry openly about the prospect of a recession at home in the United States. At the same time, some global economy watchers, such as those about to gather for the annual meetings of the International Monetary Fund in Washington this week, have been just as worried about a recession across the world.

This should be no surprise even to those who focus heavily on the United States. For months, the Federal Reserve has expressed open anxiety about potential weakness here, but has identified the trade war and economic weakness overseas as the causes of its worries. The Chinese economy has been in a soft fall for years, weighing on global growth.

Beyond the economic shakiness that was already in place just about everywhere, the trade war induced by the United States has been dragging down pretty much all activity around the globe. As a result of the conflict, the American economy is hurting, the Chinese economy is hurting, and when the two largest economies in the world are sneezing, there is a good chance that everyone will catch a cold.

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But what is a global recession? An American recession is officially called by an institution known as the Business Cycle Dating Committee, which is organized by the National Bureau of Economic Research. It considers a wide range of indicators, including but not limited to the gross domestic product adjusted for inflation. The shorthand definition of a recession is two consecutive quarters of absolute decline of gross domestic product, however, that has never been the official criterion.

There is no official arbiter of a global recession. For that matter, the world gross domestic product has no official publisher, but it is estimated by several observers. Given the large number and the diversity of the nations, an actual decline in world gross domestic product would be extraordinary. There are usually enough nations growing to keep the global average above zero. In recent decades, only the global financial crisis saw an absolute decline in world output. As a rule of thumb, without definitive data, a global recession is widely considered to be a period of growth in world gross domestic product less than 2 percent at an annual rate.

Where do we stand? World gross domestic product is growing slightly above 2 percent, and we are flirting with a global recession. But my forecasting colleagues believe the world economy is bottoming out. They have several reasons for optimism. The global Consumer Confidence Index may be the most important indicator. The corresponding measure of business executives, dealing directly with the trade war and its rising tariffs and prices, is rather dour. But historically, when consumers are optimistic and willing to spend, even frowning business executives cannot stand in their way, and right now, global consumers are ready to buy.

The German economy, which is the anchor of Europe, had been quite soft. But growth indicators suggest that Germany has hit bottom and is bouncing back. The American economy has enjoyed strong job creation numbers, which makes it hard to imagine an outright economic downturn anytime soon. China is hobbled by the trade war, but it continues to grow. Comparative weakness in Latin America is fully offset by strength in the more developed parts of the world, which is pretty much the opposite of the usual pattern, under which developing countries grow faster.

This takes us to the United Kingdom. Some would say that the country is already in a recession, making it one of the weights on a global economy that seems to have the strength, on balance, to just keep its head above water. Prolonged uncertainty and fear of the United Kingdom crashing out of the European Union in a hard Brexit weigh on the global economy. If rumors of movement toward a settlement should be borne out, the global economy should be ready to begin an upswing from short of the 2 percent growth barrier that generally denotes a recession. That would indeed be good news for both businesses and consumers everywhere.

Despite some bad luck and some policymaking wounds across the major players, the leaders of the global economy can gather with at least some collective optimism. A recession can be avoided, and growth can resume, especially if conflicts over Brexit and trade can be resolved.

Joseph Minarik (@JoeMinarik) is senior vice president at the Committee for Economic Development. He served as chief economist at the Office of Management and Budget under President Clinton and is the coauthor of “Sustaining Capitalism: Bipartisan Solutions to Restore Trust & Prosperity.”