The risk that the main developed economies are moving towards a regime of reduced economic growth in the medium term has once again gained relevance in recent months. It has been driven by the increase in the probability of recession in the United States and the eurozone, and the relapse of inflation expectations and long-term interest rates in both regions.
The balance of risks has deteriorated on the back of growth concerns in the US and China. A global trade war continues to be relevant despite the current truce, while a resurface of debt tensions in the Eurozone should not be ruled out yet due to high political instability. On a positive note, the U-turn in the Fed’s stance reduces the likelihood of overshooting.
Is this the beginning of the end? Fears that the answer may be yes, due to the US economy’s going into recession and a marked slowdown in China’s growth, both in 2020, explain the sharp correction in financial markets at the end of 2018.