Five shocks that could lead to recession |
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Abstract: | - ? Although world growth has slowed sharply, we are still some way from global recession territory. Additional shocks, probably in combination, would be needed to tip the global economy into recession.
- ? Of the range of possible shocks, we consider five plausible candidates: rising oil prices, a sharp slump in equities, tightening credit standards, a financial shock to emerging markets, and further escalation in trade tensions.
- ? By themselves, each would need to be very large to trigger a recession. However, a combined set of plausibly‐sized shocks could well be enough. Historically it is common for different shocks to coincide or overlap, and there is a risk of a slowdown feeding on its own momentum.
- ? In our view, the risk of these shocks occurring is not insignificant, as we've seen in recent oil price volatility and given factors such as high equity valuations.
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