Risks have risen, but a global recession is still unlikely....


Chief Economist, Nariman Behravesh

IHS Global Insight analysis World Flash - November 2015

With some of the world’s key economies already in recession (including Brazil, Canada, Japan, and Russia), concerns about a global recession have risen in recent months. Nevertheless, the probability of such a scenario in the next couple of years is no more than 20%. While the human toll from the horrific terrorist attacks in France is incalculably high, the experience from other high-profile terrorist attacks (New York, London, and Madrid, to name a few) suggests the negative effects on financial markets and economic activity will be relatively small and short-lived. IHS Global Insight continues to predict a slight pick-up in global growth in 2016, although there is an uncomfortably high chance that the world economy’s performance will disappoint.

United States: Economic fundamentals remain solid. The preliminary estimate shows real GDP growth slowing from an annual rate of 3.9% in the second quarter to 1.5% in the third quarter, mostly due to an anticipated inventory correction. Household spending growth remained robust, with real consumption up 3.2% and residential investment increasing 6.1%. After two weak months, employment growth rebounded strongly in October. As the inventory correction begins to ease, IHS Global Insight expects real GDP growth to pick up to a 3.2% annual rate in the first half of 2016.

Europe: Growth disappoints again. The Eurozone’s recovery lost momentum for a second successive quarter in the third quarter as real GDP growth edged back to 0.3% quarter on quarter. The slowdown was likely due to a drop in net exports. The benefit to Eurozone exporters from the weak euro was offset by muted global growth, while increasing domestic demand supported imports. Consumer spending has made healthy gains across the Eurozone, while investment results have been mixed. IHS Global Insight expects Eurozone real GDP growth of 1.5% in 2015 and 1.7% in 2016.

Johnson Sara IHS

Senior Research Director, Sara Johnson

China: Lower official growth expectations. On 29 October, the Chinese government published a summary of its fifth plenum, highlighting major themes for policy from 2016 to 2020. From an economic perspective, the key news was the affirmation of an existing target to double the economy by 2020, requiring a minimum average annual growth rate of 6.6%. Meanwhile, recent data underscore China’s two-speed economy. In the third quarter, growth in the industrial and construction sectors eased to 5.8% year on year (y/y), while the service sector’s expansion picked up slightly to 8.6% y/y. Similarly, in the housing market, the pattern of rising sales and falling construction continues. The IHS Global Insight forecast for 2015 growth has been revised upward from 6.5% to 6.8%. Our projection of 2016 growth remains at 6.3%, reflecting further weakness in investment and exports.

Other large emerging markets: The outlook is still mostly grim. Recessions in Brazil and Russia will continue in 2016. In Brazil, business and consumer confidence have fallen to record lows, reflecting perceptions the economy is in a drawn-out recession and that economic policy will remain badly managed. In Russia, there are also no signs of an economic rebound. To date, the only positive contribution to real GDP growth has come from net exports of goods and services, as imports have plummeted. India remains a bright spot, with average growth around 7.5% expected for the next few years.

Bottom line: While the risk of a global recession remains low, the fragility of growth in many of the world’s largest economies - excluding the United States - is a constant source of concern.




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