Will there be a recession?

Last Wednesday, at the British Chamber of Commerce in Brussels, Charlotte de Montpellier, economist at ING, gave a presentation on the view ING has of the global economic situation. It was very interesting, and the big question we were her expecting to answer was: will there be a recession soon?


First, she presented their analysis on the US economy: it’s doing well. 

The economy is boosted mainly due to Trump’s cuts in taxes. That injected money and people are spending it. But the government has many plans that need big government expenses, and with less taxes, it increases the risk if there is a recession because there will be no money left for the government to maneuver and avoid recession.

Unemployment is at it least since many years, production is well boosted.

The FED is increasing slowly the interest rates, what is a good practice when there is no need to have them slow to boost the consumption. That means they are confident that things are going well, and with the higher rate they increase their internal resources, so they’ll have funds to react if problems arise, if recession strikes.

Regarding trade: Trump wants to cut the unbalance reducing imports, and he does that augmenting tariffs on imported goods. But the other countries retaliated, then Trump is escalating by augmenting tariffs on other goods, and that creates uncertainty, because you don’t know when and how this war will finish. And uncertainty makes investors very careful, they stop investing until there’s a clear situation, so the global economy is slowing down.

Next US November elections may also be a turning point, because if Trump loses his majority on the chambers, he may be blocked to do the changes he wants on internal policy but his attributions as president allow him to deal with trade issues without consulting anybody, so that’s what the economists at ING think he will concentrate on.


Meanwhile in Europe the economy is doing a little less well than in the US. It’s going well, but slowly slowing down.

As oil prices are up, there is less consumption, less production.

Why are oil prices so high? Mainly because of the retreat of the US from the Iran agreement. Iran is a big oil producer, and as the US decreed an embargo, Europe and any ‘friend’ country from the US cannot trade with Iran, so you’re limited on your energy providers and prices go up.

Less consumption means slowing production, and less exported goods too (because of higher prices).

Unlike in the US unemployment is still an issue, there is an inadequacy of potential employees’ skills, companies cannot find the qualified skills they are looking for, and still there are many unemployed. Education is here a critical issue.

All of this makes for the lower confidence of investors.

Also Italy’s budget is a source of fear. They have a huge debt (131%), and want to maintain it but not to do investments but to use that money mainly for pension, lowering the age of the pension. The idea behind is that if old people leave the company, there will be room for the younger generation.  But that’s an unproven statement, and on the long run, it will not help to increase the country’s GDP (there is no investment) for lowering their external debt in the future.

The EU just revised the budget, but it’s not clear if Italy will accept the change; Markets could react strongly in the Euro zone if they don’t.


Regarding Emerging economies, things are not doing well.

Look at the Argentinian situation with a peso devaluated by 60%, the situation of Venezuela, Brazil.  All these problems make investors very careful, and that stops the global economy;


China on the other had is doing quite well, slowing down but still with a 6.5% growth.

And its great advantage is that the government can put in place economic changes because everything is regulated. So, they can react if things go wrong.


To conclude there was a positive note, though mitigated. They don’t see that there will be a recession in Europe in the following 2-3 years.  But the probability of being in recession has greatly increased in 2018 regarding what they thought on previous years 2016 or 2017. And though the US is doing better than Europe right now, recession could hit them in 2021, before hitting Europe.

Thanks Charlotte for this very comprehensive presentation.

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