Which Economies are Headed for a Recession?

With an increasing number of risks facing the global economy, fears are rising that many of the world’s leading economies are headed for a recession sometime over the next year. With the threat of global trade and investment being disrupted by the trade war between the US and China, and with demand weakening in many of the world’s leading markets, the outlook for global economic growth has unquestionably worsened in recent months. Now, the odds are rising that many of the world’s leading economies will fall into a recession sometime over the next twelve months, including some economies that have been quite strong in recent years.

A number of factors are contributing to this elevated recession risk in many of the world’s largest economies. These factors include:

Trade Wars: The ongoing trade war between the United States and China is impacting economic growth around the world, but other trade disputes (such as the one between Japan and South Korea) are also having a negative impact on many economies.
Manufacturing Slump: Many of the world’s most important manufacturing industries have found themselves in a prolonged downturn that has been made worse by the recent decline in demand in many key markets and the threat of trade and supply chain disruptions.
Falling Confidence: Business and investor confidence levels continue to trend downwards in most of the world’s largest economies, and there are signs that consumer confidence levels are also beginning to fall rapidly.
Debt: Rising debt levels were a major factor in many of the recessions that have occurred in the world’s largest economies over the past twelve years, and debt levels remain a concern in a number of the most at-risk economies today.
Already a Long Recovery: For many large economies, the growth recorded in recent years has come after what has already been a long recovery from the global financial crisis and some of the downturns that followed it, suggesting that the recovery is running out of momentum.
Political Matters: Politics continues to play a major role in determining the health of the global economy and in recent months, politics has played an important role increasing the risks that the global economy is now confronting, particularly with regards to international trade.

Here is a look at the world’s ten largest economies, in the order of how likely they are to fall into a recession sometime over the next year.

Italy (80% chance of a recession in the next 12 months): It is no surprise that Italy is the large economy with the greatest chance of falling into a recession in the next 12 months. In fact, Italy just pulled out of a recession in the first half of this year, but just barely. Now, with export demand weakening and Italy experiencing all kinds of political upheaval, the possibility of a second recession in quick succession is very high.
Germany (70% chance of a recession in the next 12 months): While the German economy performed relatively well between 2014 and 2017, the fact is that, over the longer-term, Germany has been one of the slowest growing large economies in the world. As the German economy shrank in the second quarter of this year, and as no large economy is more dependent upon exports to generate economic growth, Germany could find itself already in the midst of a recession.
Brazil (65% chance of a recession in the next 12 months): After recording strong economic growth in the early part of this decade, the Brazilian economy has been stuck in a prolonged slump, resulting in economic output today that is lower than it was back in 2013. With consumer and business spending remaining weak, and with a difficult external situation, the Brazilian economy shrank in the second quarter of this year, meaning that Brazil could currently be in another recession.
United Kingdom (60% chance of a recession in the next 12 months): The British economy had been relatively resilient amid the chaos surrounding Brexit thanks to robust consumer spending. However, economic output in the UK declined in the second quarter and the potential for a highly-disruptive no-deal Brexit has risen significantly. As a result, the UK could be already in a recession and, if it is not, one could yet occur in late 2019 or in early 2020.
France (50% chance of a recession in the next 12 months): While the French economy has not experienced the sharp downturns of the countries higher on this list, it has also struggled to generate significant growth. In fact, despite a series of economic reforms in recent years, the outlook for the French economy remains poor. Should the economic situation in Europe continue to deteriorate, the French economy could fall into a recession rather easily during the next 12 months.
Japan (35% chance of a recession in the next 12 months): Since 1992, Japan has quite often found itself on the verge of a recession as during that time, the Japanese economy has expanded by just 0.9% per year. However, while other major economies are slowing, the Japanese economy has actually performed better so far this year. Nevertheless, given its weakening domestic market and uncertain external situation, Japan’s economy could find itself in a downturn quite easily.
Canada (30% chance of a recession in the next 12 months): Canada had been one of the best-performing large developed economies in the world, until growth slowed in recent years, So far this year, the Canadian economy has struggled to generate much growth, but has avoided a recession. Nevertheless, with a weakening housing market and an uncertain trading relationship with the United States, a recession remains a possibility, especially if the US economy slows sharply.
United States (25% of a recession in the next 12 months): Even with a slowdown in the second quarter, the United States continues to outperform most other developed economies. Nevertheless, signals such as an inverted yield curve and falling confidence levels suggest that the US economy could be headed for a serious slowdown in the coming months. If this occurs, the odds of a recession in many of the world’s largest economies will rise accordingly.
China (5% chance of a recession in the next 12 months): This 5% estimation is an average of the 0% chance of a recession according to Chinese government figures, but a 10% chance according to more factual data. With the trade war with the United States showing no signs of abating, and with domestic concerns such as rising debt levels and weakening consumer demand remaining in place, China’s economy appears to be headed for more turbulence in the months ahead.
India (2% chance of a recession in the next 12 months): No large economy is less likely to fall into a recession over the next year than India. In fact, the Indian economy has not grown by at least 1% quarter-on-quarter since 2011. As purchasing power levels rise in India, the country becomes more shielded from the threat of external factors that could trigger a recession. In fact, only a full-blown global economic crisis could push India into a recession at this point.

A number of other important economies are facing a very elevated levels of recession risk at the moment. These include:

Venezuela (99% chance of a recession in the next 12 months)
Argentina (95% chance of a recession in the next 12 months)
Hong Kong (70% chance of a recession in the next 12 months)
Singapore (55% chance of a recession in the next 12 months)
Russia (50% chance of a recession in the next 12 months)
Mexico (40% chance of a recession in the next 12 months)

This overview of the recession fears facing the world’s largest economies paint a scary picture for the outlook for the global economy over the next 12 months. In fact, politicians, business leaders and investors all have many key decisions to make in the coming months, decisions that will have a major influence on the ability of these economies to avoid falling into a recession. For example, the leaders of leading economies such as the United States and China could choose to escalate trade tensions even further, reducing global trade and investment and thus slowing economic growth to a greater extent. Meanwhile, all eyes will be on monetary policy makers in the coming weeks and months, as interest rates and exchange rates will play a significant role in determining the outlook for the world’s leading economies. What is certain is that the global economy is now facing its highest level of recessionary risk since the height of the global financial crisis in 2019. Still, there is much more that could go wrong in the months ahead, and nearly all of the world’s leading economies could experience hard times in the very near future.

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