Many of the countries slowing down or in recession have a common problem: They are heavily dependent on selling goods overseas. And this is not a good time to have an export-driven economy. China’s slump and President Trump’s trade war are undercutting the global exchange of goods that had helped power the global economy for decades, and some of these countries are seeing sharp declines in exports.
In other nations, notably Argentina and Russia, long-standing problems at home are bubbling over at a moment when global investors are skittish and quick to bolt, which exacerbates trouble.
“I see fires everywhere, but not a lot of firefighters,” said Sung Won Sohn, an economics professor at Loyola Marymount University in Los Angeles and president of SS Economics.
China is likely to do more stimulus to stabilize its economy, especially ahead of October, when the nation marks the 70th anniversary of the founding of the People’s Republic of China under Mao Zedong. And a number of central banks, including the U.S. Federal Reserve, are cutting interest rates (some nations even have negative rates) in an attempt to spur people to borrow and spend, but economists say that’s likely to have a limited effect because the world already has a lot of cheap capital.
For now, U.S. consumers are the bright spot holding up much of the global economy. But Trump is moving forward with more tariffs on popular items Americans like to buy from China: clothing, cellphones, TVs and toys. He delayed some of the tariffs so they won’t hit in time for Christmas, but the higher prices are still coming, causing more discomfort and uncertainty around the world.
“Trump providing more trade certainty would be number one, two and three on the list of ways to help the economy,” said Vincent Reinhart, chief economist at BNY Mellon Investment Management.
Trump is correct when he says many other nations depend more on trade than the United States does. Exports account for about 13 percent of the U.S. economy, while domestic consumer spending makes up about 70 percent. But Trump is about to test the limits of whether the United States can stand alone as trouble spots grow around the world.
Here’s a rundown of key economies with recession worries.
Germany: The German economy shrank 0.1 percent in the second quarter after anemic 0.4 percent growth at the start of the year. Two consecutive quarters of negative growth is the technical definition of a recession, and Germany is nearly there, sparking fears of an official recession by the end of the year. Germany is heavily reliant on manufacturing cars and other industrial goods to power its economy. Most of the world — including the United States — is experiencing a manufacturing recession. So far, the famously austere German government has been reluctant to spend to stimulate growth.
United Kingdom: The U.K. story is similar to Germany’s. Growth contracted 0.2 percent in the second quarter after a weak 0.5 percent performance in the first quarter. On top of manufacturing woes, the United Kingdom has seen an investment slump, largely because of uncertainty over Brexit. If Britain leaves the European Union in October without a deal — a “hard Brexit” — the nation is widely expected to enter a recession.
Italy: The eurozone’s third-largest economy has struggled for years and entered a recession last year. And 2019 hasn’t been much better. Growth in the second quarter was just 0.2 percent, and there’s concern that will turn negative as Italy sells some goods to Germany, which is in worse shape. Italy also struggles from continuing political crises that make additional economic aid from the government difficult. Italian Prime Minister Giuseppe Conte is facing a no-confidence vote in his country’s Senate later this month and may have to resign, and Italy’s debt is one of the highest in the world.
Mexico: The southern U.S. neighbor has also been a target of Trump’s trade and immigration battles, which appear to be taking a greater toll than many expected. Mexico’s economy contracted 0.2 percent at the start of the year and barely escaped an official recession in the second quarter by growing just 0.1 percent. Mexico has also suffered declines in business investment and confidence as companies fear leftist President Andrés Manuel López Obrador will nationalize industries.
Brazil: The largest economy in South America shrank 0.2 percent in the first quarter and is widely expected to show negative growth again in the second quarter when the official data comes out at the end of August, marking a recession. Brazil has struggled to sell goods overseas and also has seen sluggish demand at home. Some thought Brazil would benefit as China sought to buy soybeans and other products somewhere other than the United States, but slumping commodity prices have hurt. Brazil’s central bank cut interest rates, and President Jair Bolsonaro’s government is giving out cash payments to workers in an effort to stimulate growth.
Argentina: Argentina is in crisis. It’s already in a recession, and it appears to be getting worse. On Monday, Argentina’s stock market dropped nearly 50 percent, the second largest one-day crash any nation has experienced since 1950. The country is experiencing rapid inflation, when prices spike, and President Mauricio Macri was defeated in the nation’s primary elections. Investors fear Argentina won’t be able to repay its debts, and middle-class Argentines are fearful they won’t be able to afford everyday products as the value of the Argentine peso keeps dropping, especially against the U.S. dollar.
Singapore: The Asian nation reported Tuesday that its economy contracted 3.3 percent in the second quarter, a sharp reversal from over 3 percent growth in the first quarter. Singapore blamed the U.S.-China trade war for its problems, as its economy is heavily reliant on exports. Many economists watch Singapore and South Korea as strong indicators for what’s ahead for the global economy because these nations trade with so many others, especially China and the United States.
South Korea: South Korea managed to avoid a recession in the first half of the year — barely. The South Korean economy shrank 0.4 percent in the first quarter but rose 1.1 percent in the second quarter, a better-than-expected performance that many experts don’t think will last. Japan and South Korea are in the midst of a trade war of their own that is expected to drag down growth and make it harder for South Korea to sell electronics and cars abroad. The South Korean central bank lowered interest rates, but it’s unclear if that will be enough. Electronics exports are down about 20 percent in recent months, and semiconductor exports are down more than 30 percent, according to ING.
Russia: A Russian economic institute warned last week that Russia could be in a recession by the end of the year after growing a modest 0.7 percent in the first half of 2019. Russia has struggled since 2014 as oil prices plummeted and other nations put sanctions on Russia because of its military actions in Ukraine. Russia has worked to shield its economy as much as possible from U.S. government sanctions by limiting deals with the United States and trade in U.S. dollars, but that has meant greater reliance on China, which is now slowing. Russia has also tried to build up its government cash reserves, which has left little money for stimulus.
The United States economy is primarily a service economy that feeds off domestic demand, which provides some insulation to problems overseas. But there are limits to that buffer. As other countries falter, global investors are buying up U.S. Treasury bonds, causing the yield curve to invert in the United States, a recession warning sign and reminder that there are ways that panic abroad spills over.
“There is potential for a U.S. recession, not because of the yield curve itself, but because of the lunacy of trade policy and the damage it’s doing,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics.