KME Chartered Accountants

April 02,2019

The global economy is “highly likely” to fall into a recession if the U.S. and China don’t reach a trade deal within three months, according to Moody’s Analytics Chief Economist Mark Zandi.

His prediction was based on current “extraordinarily fragile” business sentiment that was a result of a protracted tariff fight between the two largest economies in the world that started last year. The U.S. and China are now negotiating a deal, with representatives from both countries expected to meet in Washington this week.

“Business sentiment across the globe is extraordinarily fragile,” the economist told CNBC’s “Squawk Box” on Tuesday. He added that a survey conducted by Moody’s recently showed that confidence among companies was at its weakest since the end of the financial crisis a decade ago.

“Businesses are really on edge and I think it’s because of this trade war. And if it’s not settled in the next couple (to) three months, I think a global recession is highly likely,” said Zandi.

The global economy is “highly likely” to fall into a recession if the U.S. and China don’t reach a trade deal within three months, according to Moody’s Analytics Chief Economist Mark Zandi.

His prediction was based on current “extraordinarily fragile” business sentiment that was a result of a protracted tariff fight between the two largest economies in the world that started last year. The U.S. and China are now negotiating a deal, with representatives from both countries expected to meet in Washington this week.

“Business sentiment across the globe is extraordinarily fragile,” the economist told CNBC’s “Squawk Box” on Tuesday. He added that a survey conducted by Moody’s recently showed that confidence among companies was at its weakest since the end of the financial crisis a decade ago.

“Businesses are really on edge and I think it’s because of this trade war. And if it’s not settled in the next couple (to) three months, I think a global recession is highly likely,” said Zandi.

If talks between the U.S. and China break down and end without a trade deal, that could hurt business sentiment further and lead companies to reduce hiring, he said. When that happens, unemployment would rise, causing consumers to lose faith in the economy, he explained.

“The difference between an expanding economy and a recessionary one is simply faith — faith that the economy is going to be okay. And if you lose faith, no central banks are going to get that back. That’s a recession,” said Zandi.
Brexit problem

Adding to risks facing the global economy is the potential that the U.K. would leave the European Union without a withdrawal agreement.

On Monday, the British parliament again failed to break a deadlock surrounding the country’s departure from the EU. Lawmakers thrice rejected Prime Minister Theresa May’s divorce deal but couldn’t find an alternative.

Zandi said his “very subjective” guess is that there’s a one-third probability that Brexit would happen without a deal, which “feels uncomfortably high.”

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