“The combination of sluggish growth and acute market turmoil has triggered fears that the global economy could be heading for recession, eight years after the global financial crisis,” said Lawson.
“Whilst we have a number of tools and indicators we can use to understand the business cycle and the risks ahead, there is conflicting evidence,” he added.
In April’s edition of SLI’s Global Outlook Lawson outlines why a significant amount of financial stress has taken hold of the global economy, particularly at the beginning of this year – further clouding the economic outlook.
At first glance, he said, economic variables including current account balances, labour market slack and credit growth are showing characteristics indicating activity is more mid-cycle than late-cycle. But financial variables such as equity market values, credit spreads and the yield curve suggest that the cycle is maturing more quickly. More worrying signs are coming from the recession probability models based on financial variables, Lawson added.
Although there are conflicting signals between economic and financial indicators, there is not enough evidence in the fundamentals to indicate that we are heading into recession this year, according to the economist. Forward looking indicators point to continued growth through the Spring, outside of the commodities sector, in Lawson’s view.
“However, we need to monitor conditions very closely over the coming months for signs that we are too sanguine,” he said.
The OECD’s composite leading indicator is designed to provide early signs of turning points, Lawson noted in the paper, and is currently signalling stable but subdued growth across the developed world, with a mixed outlook in emerging markets.
