Is the Global Economy Taking a Wrong Turn?
The global economy is taking a very wrong turn. If you are a stock investor, be very careful, because a global recession could become a reality in 2019.
Major economic hubs are slowing down. Just recently, the European Central Bank (ECB) came out and said that the eurozone’s growth is dire.
“We are [in] a period of continued weakness and pervasive uncertainty,” said ECB president Mario Draghi. “The near-term growth outlook will be weaker than previously anticipated.” (Source: “European Central Bank acts to boost struggling eurozone,” BBC, March 7, 2019.)
For a major central bank to make remarks like this is alarming. Central banks usually use a lighter tone when talking about bad news.
Why should you worry about what’s happening in the eurozone? Well, the common currency region is one of the biggest economic hubs in the global economy. If it slows down, it’s a global problem.
Also keep in mind that a lot of American companies have business there. A slowing eurozone could hurt their revenue and profitability—and eventually, their stock prices.
A Look at Other Major Economies
Don’t get fixated on the eurozone alone.
For starters, look at China, the biggest powerhouse in the global economy after the U.S. The country could be bracing for an economic storm.
The Chinese government is lowering its growth target, now expecting the economy to grow between six percent and 6.5%. If this is the final figure, it would be the slowest pace since 1990.
At the annual parliamentary meeting, Li Keqiang, Premier of the State Council of the People’s Republic of China, said that the country has to be prepared for struggle as it is facing a “grave and more complicated environment.” (Source: “Asian markets mixed; China lowers its growth target,” CNBC, March 4, 2019.)
A slowdown in China will not be good for anyone, especially those that do business with it. More specifically, a lot of American companies rely on Chinese goods and materials. Many have set up operations there as well.
But it isn’t just China. Japan remains stagnant at the very best. Australia and New Zealand are also reporting troubling economic data.
The Bank of Canada recently came out and said that a slowdown is brewing in the country, and it’s worse than previously expected. The bank is especially worried about the country’s housing market, consumer spending, and the oil sector. (Source: “Bank of Canada holds interest rate steady but some suggest a rate cut could be back on the table,” CBC, March 6, 2019.)
The Bank of Canada, just like the Federal Reserve, was raising rates.
And then, of course, the U.S. economy isn’t doing too well, either.
What Happens If a Global Recession Becomes Reality?
Here’s the thing; if major economies are slowing down, it could have a snowball effect on a global scale.
This may sound severely pessimistic, but I am not ruling out another financial crisis happening as the global economy slows down.
For stock investors, keep in mind that in the short term, there may be some gains. But with the global economy slowing, it would be foolish to think that stocks will perform well. A sell-off could be ahead.
Becoming complacent could be a big mistake at the moment.