The prices of US President Donald Trump have sparked forest fires on the world’s stock markets, but does that mean that we are heading for a recession?
The first thing to emphasize is that what is happening on the stock market is not the same as what is happening in the economy – the decline in equity prices does not always mean the economic misery to come.
But sometimes they do.
Very large falls in stock market values, like these, mean that there has been a fundamental reassessment of future profits for the companies that make up the stock markets in the world.
What the markets expect the increased prices will mean that costs will increase and that the profits will drop.
This does not mean that a recession is inevitable, but the chances are clearly much higher than they were before Trump announces the most serious and extensive prices observed in a century.
An economy is defined as a recession when the total of everything we and the government spend or exports shrinking for two successive periods of three months.
Between October and December of last year, the British economy increased by 0.1% and the last monthly data showed that it had decreased by the same amount in January.
The first estimate of how the British economy succeeded in February will be published next Friday.
So we are far from being able to say if we have struck this definition.
However, in the blood bathing of the stock market falls, there are particularly bloody and disturbing victims.
Banks are often considered as indications of savings. As a highly respected market observer said to me today: “What made me catch my breath was the fall of banks.”
HSBC and Standard Charterd – which operate at the intersection of international trade between East and West – both decreased by more than 10% during the night before recovering land.
Other warning panels are not on the stock markets but the exchanges of raw materials.
Copper and oil prices are considered to be world economic health barometers.
Both fell more than 15% since Trump abandoned his pricing bomb.
There were not many really global recessions.
The 1930s, the consequences of the great financial crisis and panic around the pandemic are three rare examples when we have seen synchronized slowdowns in major economies.
It is always considered that we could see something on this scale this time, but the chances of recession in the United States, the United Kingdom and the European Union have been considerably improved by most economic analysts.
On the positive side of the British Chancellor Rachel Reeves, the government’s borrowing costs should drop by around 5 billion pounds sterling to 6 billion pounds sterling per year while investors flock to the relative security of public obligations.
But it will be more than compensated by the sureties to the government’s tax revenue if and when the economy as a whole reverses.
