Mounting predictions of a US recession arriving later this year or in early 2017 suggest a shift in economic policy might be deemed necessary in order to readjust America’s growth potential, avoiding or preventing a period of economic contraction.
Kristian Rouz — With the current US business cycle ending within the next year, the currently sluggish growth, rife international headwinds, declining corporate profits, lingering stickiness in wages and prices, and rising expectations of an economic downturn, a shift in economic policy might prevent an across-the-board contraction in the US GDP.
The upcoming presidential election is likely to determine the direction of further policy, with options predominantly limited to maintaining the status quo, or implementing elements of supply-side economics in the near-to-mid-term, with recession aversion being the pivot point on the new White House administration’s agenda.
The chances of a recession starting in the US in late 2016-early 2017 have increased to 30-50 percent from the previously consensus-expected 20 percent after the UK opted out of the European Union, sending shockwaves across many of the world’s economies, including the US. With yields on US Treasuries projected to decline further, driving gains in the dollar’s FX rate, the US inflation rate might collapse back to near-zero as Brexit is poised to slow trade and investment on a global scale, adding to the already-prevalent tendency towards a deceleration in GDP gains in advanced economies and emerging markets alike.
That means that the 20-30 year era of credit-fuelled growth, which capitalized on immigration, the offshoring of manufacturing facilities, and the free movement of capital across national borders, all considered aspects of “globalization,” may end.