According to experts, the global plague of recession could infect the US

• Major US trading partners, including the UK, Germany and Japan, have recently entered recession as inflation and high interest rates weigh on businesses.
• Although the United States has so far avoided a recession, it could be dragged into economic turmoil as international trade and business decline, according to experts who spoke with the Daily Caller News Foundation.
• “Because of the large trade networks that start and end in the United States, ultimately enough smaller nations that see economic slowdowns or recessions will affect the economies of larger nations,” said Peter Earle, an economist at the Institute American Economic Research, at the DCNF. . “Unless the recessions these nations fall into are short and shallow, the effects will be felt by American consumers.”

Recessions currently facing several major countries around the world could be what drags the US into an economic recession of its own, experts told the Daily Caller News Foundation.

Germany announced on Monday that it slipped into a technical recession in the fourth quarter of 2023, after posting its second consecutive month of negative growth, following several other major nations struggling economically. Although the U.S. has managed to avoid a recession due to its size and diverse industries, foreign economic unrest can drag the U.S. economy down through changes in trade and global inflation that would result in a loss for American companies, experts told the Daily Caller News Foundation. .

“At a time when the US economy now faces a serious challenge from a commercial real estate crisis that could trigger a wave of regional bank failures, the rest of the world economy is doing poorly,” Desmond Lachman , senior fellow at the American Enterprise Institute, told the DCNF. “This increases the chances that the US will experience an economic recession before the end of the year as its export markets shrink.”

The US economy has so far avoided a recession, though predictions by the main banks and investors that will materialize. gross domestic product (GDP) it grew up 3.3% year-on-year in the fourth quarter of 2023 and 4.9% in the second quarter, well above usual growth rates.

The US commercial real estate sector today hold on about $2.81 trillion in loans maturing through 2028 and facing rising interest rate costs and declining demand for office space that have eaten into profits, creating headwinds for reimbursement. Small and regional banks are particularly at risk because of their large exposure to commercial real estate debt, which could contribute to another banking crisis if developers default on their debts.

“The UK and Germany are already in recession as a result of the need for higher interest rates to deal with high inflation,” Lachman told the DCNF. “Like the U.S., these countries also have commercial property challenges as a result of increased home working and online shopping following the COVID pandemic. This could strain their banking systems and delay any economic recovery”.

The UK experienced a similar bout of inflation following supply shocks from the COVID-19 pandemic, pushing inflation to 11.1% y-o-y in October 2022 and so far only it has slowed to 4.0% in January. seconds to Reuters. The Bank of England has set interest rates at 5.25% in an attempt to control high inflation.

The Conference Board's leading economic index fell again in January, but they have dropped their recession forecast, instead saying growth will only slow; We face the reality that if the government is willing to spend/borrow/print enough, we can avoid a “technical” recession for years…. pic.twitter.com/oy1MYb1Hs9

—EX Antoni, Ph.D. (@RealEJAntoni) February 20, 2024

“Higher prices have meant a drop in purchasing power and therefore a drop in consumption,” Peter Earle, an economist at the American Institute for Economic Research, told DCNF. “Many are also experiencing a drop in business confidence and reduced capital investment. These are all medium- to long-term effects of massive monetary expansion and heavy non-pharmaceutical interventions (lockdowns, stay-at-home orders , etc.) to fight against COVID.”

China had some tighter Global COVID-19 restrictions as part of the country's Zero COVID policy, which lasted until December 2022. Since then, the country's economy failed to return to the growth rates seen before the lockdowns and faces additional pressure deflation.

Global supply chains have it it continued to deal with disruptions beyond the COVID-19 pandemic, with global shipping having recently experienced major hiccups from Iran-backed Houthi militant attacks in the Red Sea, suffocating routes through the Suez Canal. At the same time, a drought around the Panama Canal has forced the shortcut to reduce the number of ships allowed to travel each day, with both disruptions adding additional costs and longer transit times to overall shipping costs.

France has attributed part of its poor economic outlook to trade disruptions across the Red Sea, as well as conflict in Ukraine and the Middle East and economic problems in China and Germany. seconds to Reuters. The country expects GDP growth of just 1% in 2024.

“The Chinese economy, the world's second largest, is now moving onto a path of markedly slower economic growth as a result of the bursting of its huge housing and credit bubble,” Lachman told the DCNF. “China's economic slowdown is causing serious problems for its Asian economic partners, including Japan, which has now also fallen into recession.”

China's real estate sector is currently in crisis after a large percentage of major developers defaulted on their debts, and the country announced on Tuesday that it was sharply lowering the benchmark mortgage rate to help boost the sector. seconds to Reuters. Evergrande Group, a major Chinese developer, was orderly liquidate more than $300 billion in liabilities after failing to come up with a new restructuring plan.

Against China's decline, Japan's GDP fell 0.4% in the fourth quarter after falling 3.3% in the third quarter of 2023. seconds to Reuters. The Japanese economy has long experienced slow growth, with interest rates currently negative to encourage economic activity.

“The United States is at risk of a recession even without other nations collapsing,” Earle told the DCNF. “A recession in a nation that buys large amounts of U.S. exports would mean a drop in income among U.S. exporters. Also, if certain nations prioritize domestic consumption over exports, a foreign recession could mean less goods and services imported into the US than US citizens are used to.”

Nations experiencing economic recession are among the US's top trading partners, with China, Germany, Japan and the UK all in the top seven. seconds at the Census Bureau. US exports rose amid comparative economic resilience in 2023, while imports declined as many global trading partners experienced economic turmoil. seconds to Reuters.

“If there's a silver lining to the global economic malaise, it's that it should help the Fed fight inflation,” Lachman told the DCNF. “We could see a continued reduction in international food and energy prices as a result of reduced demand and lower import prices, particularly for goods imported from China, which should be expected to export deflation to the rest of the world”.

Inflation in the US remains elevated to 3.1% in January, far from the Fed's 2% target. To combat high inflation that peaked at 9.1% under President Joe Biden in June 2022, the Fed has set its federal funds rate in a range of 5.25% and 5.50% , the highest rate in 23 years.

“Because of the large trade networks that start and end in the United States, ultimately enough smaller nations that see economic slowdowns or recessions will affect the economies of the larger nations,” Earle told the DCNF. “Unless the recessions these nations fall into are short and shallow, the effects will be felt by American consumers.”

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