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Recession Fears: Five Risks for the US Economy



The US economy is on a solid footing for the time being. Strong consumer spending supports the country's longest expansion in the eleventh year, despite weak business investment and a slowdown in the manufacturing sector. Since Trump's inauguration, wages have grown, the stock market has hit record highs, and unemployment has remained at a historical 50-year low.

But as the saying goes, "economic expansion does not die of age." Something has to happen that scares businesses, consumers and investors.

It is difficult to predict if or when a recession could hit the US. However, the trigger could be a number of factors – Trump's trade policy, a weakening global economy, the waning effects of 201
7 tax cuts, or even a catastrophic deflationary risk.

. 1 Consumer spending slump

Consumers are driving the US economy in the face of slowing corporate investment.

The money Americans spend each day on coffee, cars and clothing accounts for about two-thirds of economic growth. And the fact that, despite a tumultuous trade war with China this year, Americans are not shying away from spending well, has helped offset the weaknesses in other sectors of the economy.

Retail Sales – Economic Data That Captures Spending In stores, restaurants, and the Internet, the strongest reading since March was posted in July, according to the Commerce Department on Thursday, partly due to Amazon's Prime Day and other retailer promotions. Walmart, a pioneer of US consumer spending, also reported strong sales in its major stores and increased its forecast for the remainder of the year.

Worry about a future downturn can also be a self-fulfilling prophecy. When consumers start worrying about the possibility of a worsening economy, they usually want to stop spending so much and delay larger purchases.

2. An Escalation with China

Trump's recurrent trade war with China has unsettled US importers, as well as those affected by Beijing's retaliatory tariffs, about what's coming next. This has already slowed down the investment decisions of US companies and is likely to continue for some time.

In an effort to keep the Christmas shopping season under control, the Trump government this week agreed to cut its 10% tariff plans to $ 300 billion in billions of Chinese goods entering into force on September 1st should. But men's and women's clothing, and some electronics and sporting goods from China, will continue to be affected by a 10% charge, which will start in about two weeks.

  Aides got Trump to defer duties by telling President that it could ruin Christmas

Beijing was threatened with retaliation this week, although most tariffs on China-made mobile phones and toys have been cut. "China would have no choice to take the necessary countermeasures," said a statement by the Customs Tariff Commission of the State Council.

Goldman Sachs and other analysts no longer anticipate that the Trump government will reach a trade agreement with China before 2020, and expect far deeper economic repercussions from the trade war.

3. A Global Slowdown

Five of the world's largest economies are now threatened by a recession – and the spillover effect could eventually hurt the US economy as well.

Germany, the fifth largest economy in the world, reported that its economy contracted in the second quarter, opening up the possibility of a full-blown recession. Added to this was the UK, whose economy has also shrunk for the first time since 2012.

The International Monetary Fund lowered its forecast for global growth this year to 3.2%, the weakest expansion rate since 2009. It has also downgraded its 2020 expectations to 3.5%.

The Fund warned that growth in 2020 would fall by half a percentage point if the trade dispute escalated further.

In response, central banks around the world have cut interest rates this year to prevent a global slowdown. Last week, three central banks – India, New Zealand and Thailand – cut interest rates more aggressively than expected in the face of fears of trade and growing economic uncertainty.

4. Low Inflation

Inflation has remained historically low in the United States and around the world. This is one of the reasons why the Federal Reserve led Jerome Powell to set a rate cut for the first time since the 2008 financial crisis.

Central bankers consider low inflation to be dangerous as they tend to put a strain on interest rates and give them less leeway for juice economy in a recession. That's exactly what happened in Japan, which has been having problems fueling growth for years.

"We do not want this road," Powell warned lawmakers in July.

The latest report this week showed that US inflation rose slightly, providing some comfort to policymakers worried about deflation. However, slowing down overseas could lower energy prices and make it harder for policymakers to keep the US economy at a stable inflation rate of 2%, which is a sign of a healthy economy.

5. The Great Unknown: Brexit

The decision of the new British Prime Minister, Boris Johnson, to abandon the efforts to negotiate a "soft Brexit" with the European Union has led to additional global economic insecurity.

Johnson has pledged that Britain would do so on 31 October, leaving the European Union with or without agreement, raising concerns about food and drug shortages. While the UK economy is expected to recover in the third quarter following a recession, the decision to leave the EU without triggering a deal could trigger a downturn that would further accelerate a global slowdown.


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