The Hill

The state of the global economy

Some U.S. economy watchers worry openly about the prospect of a recession. 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 global recession.

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 as the causes of its worries the trade war, and economic weakness overseas. The Chinese economy has been in a long, soft fall for years, which weighs on global growth. 

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

But what exactly is a “global recession?” A “recession” in the United States is officially called by an institution known as the “Business Cycle Dating Committee,” which is organized by the National Bureau of Economic Research. The committee considers a wide range of economic indicators, including but not limited to the inflation-adjusted gross domestic product (GDP). There has long been a shorthand definition of recession as two consecutive quarters of absolute decline of the GDP, but that has never been the official criterion.

There is no equivalent official arbiter of global recession. And for that matter, the global GDP has no official publisher, but is estimated by several observers, including The Conference Board. Given the large number and the diversity of the nations on the globe, actual decline in the global GDP would be extraordinary. There are almost always enough national economies growing to keep the global average above zero. In recent decades, only the global financial crisis saw an absolute decline in global output. So as a rule of thumb, in the absence of definitive data and defining authorities, a global recession is widely considered to be period of growth in the world GDP less than 2 percent at an annual rate.

Where do we stand? At this time, world GDP is growing at slightly above 2 percent. We are flirting with a “global recession.” But my economic forecasting colleagues believe that 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 CEO Confidence measure is rather dour. Business executives, dealing directly with the trade war and its rising tariffs and prices, are rather downbeat. But historically, when the consumer is optimistic and is willing to spend, even frowning business CEOs cannot stand in their way. And right now, according to the confidence index, 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 hit bottom and is bouncing back. The US economy enjoyed strong job-creation numbers (marginally behind expert expectations, but none the less healthy for this advanced point in the business cycle), which makes it hard to imagine an outright economic downturn anytime soon. China is hobbled by the trade war, but 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.

Which takes us to the United Kingdom. Some would say that the UK 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 UK crashing out of the European Union in a “hard Brexit” have weighed on the UK and global economies. If the recent rumors of movement toward a settlement should be borne out, the global economy should be ready to begin an upswing from just short of the 2-percent-growth barrier that generally denotes recession. That would be good news for businesses and consumers everywhere.

Despite some bad luck and some self-inflicted wounds, the leaders of the world economy can gather with at least some collective optimism. Recession can be avoided, and growth can resume, especially if conflicts over Brexit and world trade are 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.”