The global economy stumbling, not falling


(An analysis)

That’s the analysis of investors, bankers and former policy makers attending the World Economic Forum in Davos, Switzerland, as they argue the expansion is weakening but not by enough to generate a recession.

“We’re slowing, but we’re still growing,” said Philipp Hildebrand, vice chairman of BlackRock Inc. and a former Swiss central banker. “The chances of a recession short of a major mistake or accident this year are limited.”

Financial markets have wobbled in recent months, with the S&P 500 Index dropping 1.4 percent on Tuesday — on concern economic weakness in the U.S. and China could barrel out of policy makers’ control and fears a trade truce may not hold. Other political flash points such as Brexit and the U.S. government shutdown have added to investors’ concerns.

“What’s right?,” Citigroup Chief Executive Officer Michael Corbat asked at a Bloomberg event in Davos. “Are the markets right as we saw in December and truly predicting a significant slowdown to recession or are the fundamentals that we’re seeing in employment and wages and purchasing and housing coming together for what feels like a reasonable economy. One of those we know is wrong.”

The half-glass full attitude was on display in the International Monetary Fund’s updated outlook released on Monday. While it forecast this year would witness the softest global growth since 2016 of 3.5 percent, it left its estimates for the U.S. and China in 2018 unchanged and predicted a slight pickup worldwide next year.

“The bottom line is that after two years of strong expansion, the world economy is growing more slowly than expected and risks are rising,” IMF Managing Director Christine Lagarde said. “Does that mean that a global recession is around the corner? The answer is ‘no’.”

Davos delegates echoed that view about a decade after visitors to the Swiss alpine retreat failed to predict the 2009 recession — the deepest since the Great Depression.

“I would not even call it a slowdown,” said Jacob Frenkel, vice chairman of JPMorgan Chase International. “There is already the ingredients of ‘gee, we’re about to enter another recession.’ That’s not the case.”

China Concerns

The chief concern is that Chinese officials prove unable to cushion their economy, the second biggest and responsible for about a third of global growth. Data released Monday showed 2018 was the slowest expansion since 1990 as the government tries to rely less on investment and debt while insulating demand threatened by the trade war.

Policy Risk

Another risk cited in Davos is that central banks tighten monetary policy too aggressively. That’s becoming less of a threat given Federal Reserve Chairman Jerome Powell has indicated a willingness to be more patient after raising interest rates four times last year.