Recession Fears Resurface in Global Markets

LONDON (Reuters) – Global growth concerns have surged back into focus for financial markets as weakening U.S. economic data and escalating trade tensions undermine consumer confidence and business activity. While economists do not consider recession the base-case scenario due to underlying U.S. resilience, recent data has unsettled investors. The introduction of new 25% tariffs by U.S. President Donald Trump on Mexico and Canada has further intensified growth anxieties.

Market Reactions to Economic Indicators

Oil prices have plummeted to their lowest levels since October, while stock markets from New York to Tokyo are retreating from recent multi-year highs. Additionally, two-year U.S. Treasury yields have dropped to their lowest since October, as bond investors anticipate increased chances of near-term rate cuts. “One thing is essential for an economy, and that’s confidence, which has taken a hit,” stated Francois Savary, chief investment officer at Genvil Wealth Management, highlighting the decline in U.S. consumer and business sentiment.

Consumer Confidence Takes a Hit

U.S. consumer confidence saw its most significant decline in 3-1/2 years this January, with retail sales experiencing their largest drop in nearly two years. Recent U.S. manufacturing activity data also indicated substantial decreases in new orders and employment. “We don’t foresee a (U.S.) recession, but we do anticipate a modest growth slowdown,” remarked Joost van Leender, senior investment strategist at Van Lanschot Kempen Investment Management in Amsterdam. He noted that consumers are feeling uncertain about the “chaotic” U.S. policy landscape.

Investment Strategies Amid Uncertainty

Van Leender mentioned that he had reduced U.S. equity holdings in late January and is now favoring Treasuries, as yields are expected to decline with the economy’s deceleration. The Atlanta Fed’s GDPNow model estimate for annualized growth this quarter fell dramatically from +2.3% to -2.8% within a week, underscoring the shift in economic forecasts.

Trade Wars and Economic Implications

Analysts emphasize that recent U.S. data may have been influenced by one-off factors, such as adverse weather conditions and strong imports affecting the Atlanta Fed’s model. However, the ongoing trade war is shifting focus from inflation concerns to the growth risks posed by U.S. tariffs. In response to the U.S. doubling duties on Chinese goods to 20%, China has announced additional tariffs of 10%-15% on certain U.S. imports effective March 10.

Impact on Canadian and Mexican Economies

Europe is also facing potential repercussions from higher U.S. tariffs, with trade-sensitive auto stocks experiencing a 4% drop following the tariffs on Mexico and Canada, where many vehicles for the U.S. market are manufactured. Morgan Stanley estimates that the new U.S. tariffs on China, Mexico, and Canada could reduce U.S. economic growth by 0.7-1.1 percentage points in the upcoming quarters, inflict a 2.2 to 2.8 percentage point hit to Canadian growth, and potentially push Mexico into recession.

Warnings from Economic Leaders

Candace Laing, CEO of the Canadian Chamber of Commerce, cautioned that U.S. tariff policies are steering both Canada and the U.S. toward “recessions, job losses, and economic disaster.” The Canadian dollar and Mexican peso briefly reached one-month lows on Tuesday, reflecting the market’s anxiety. Interestingly, the U.S. dollar, which typically benefits from trade tensions, has also weakened as worries about U.S. growth mount.

Global Central Banks Under Pressure

Analysts suggest that the trade war is exerting pressure on central banks worldwide to continue cutting rates to bolster growth. Traders are now pricing in 75 basis points of rate cuts, indicating a growing consensus on the need for monetary easing in response to the deteriorating economic landscape. For more insights, visit the original article.