As 2025 draws closer, fears of a global recession are growing, with several major economies showing clear signs of strain. A recession, characterised by two consecutive quarters of gross domestic product (GDP) contraction, reflects a significant decline in economic activity.
In Europe, Germany, the region’s largest economy, is under significant pressure. High energy prices, geopolitical tensions, and potential trade disruptions with the US and China are weighing heavily on its industrial sector, heightening fears of a slowdown.
The UK is on the brink of recession, with revised GDP figures showing zero growth in the third quarter of 2024, signaling stagnation.
Also Read: Macquarie warns of likely 10% drop in Indian markets in 2025
Japan, world's third-largest economy, also unexpectedly slipped into recession earlier this year, driven by weak domestic demand. Average household debt in Japan rose to ¥6.55 million in 2023, exceeding average incomes, forcing many households to turn to loans with high interest rates.
New Zealand also entered a recession, with its GDP contracting by 1% in the July-September quarter, following a revised 1.1% decline in April-June. This six-month contraction marks New Zealand's weakest economic performance since 1991, outside of the COVID-19 pandemic, according to Kiwibank Economics.
Also Read: Bankruptcies rise as Japanese struggle with mounting debt
In contrast, the US economy remains resilient. Goldman Sachs recently lowered the probability of a US recession in the next 12 months to 15%, down from an earlier forecast of 20%, citing a resilient job market.
This aligns with the long-term average probability of 15%, noted Jan Hatzius, Chief Economist and Head of Goldman Sachs Research, in the team’s report.
“There’s no sign of a recession. If markets and the economy are doing well, you might get some stress in pricing, leading to inflation,” said Bhaskar Laxminarayan of Julius Baer, suggesting that inflation, not recession, may be a bigger concern in the US.
However, the strength of the US dollar, driven by capital flows from emerging markets, has created significant headwinds for countries in Asia, excluding Japan, according to Rajeev Agrawal of Doordarshi India Fund.
Also Read: Mark Matthews on why US market could dip 20% in 2025
Adding to global uncertainty are geopolitical risks and trade policies. President-elect Donald Trump’s plans to introduce a new tariff regime after his January 2025 inauguration could further disrupt global trade, exacerbating economic pressures.
Geopolitical tensions, including ongoing conflicts in Ukraine and the Middle East, as well as political gridlock in major European economies like Germany and France, continue to weigh on global stability
Mark Matthews of Bank Julius Baer emphasized the inherent difficulty of predicting recessions, citing the complexity of economic systems.
“Recessions are impossible to predict. Economists who forecast them are just lucky, that’s all,” he said.
Matthews warned that vulnerabilities, such as high market valuations and inflation risks, could make 2025 particularly fragile.
Also Read | UBS believes Indian property market is far from the peak
While these signs of strain are concerning, some analysts remain optimistic.
JP Morgan estimates only a 15% probability of a global recession in the first half of 2025, suggesting that while risks are present, a downturn is not imminent.
However, Bruce Kasman, Chief Economist at JP Morgan, warned that if the US adopts sharply protectionist policies, such as curtailing trade or large-scale deportations, it could create a significant global supply shock. “The disruptive impact would be amplified by retaliation and a global sentiment slide, posing a major threat to the global expansion next year,” he said.
In Europe, Germany, the region’s largest economy, is under significant pressure. High energy prices, geopolitical tensions, and potential trade disruptions with the US and China are weighing heavily on its industrial sector, heightening fears of a slowdown.
The UK is on the brink of recession, with revised GDP figures showing zero growth in the third quarter of 2024, signaling stagnation.
Also Read: Macquarie warns of likely 10% drop in Indian markets in 2025
Japan, world's third-largest economy, also unexpectedly slipped into recession earlier this year, driven by weak domestic demand. Average household debt in Japan rose to ¥6.55 million in 2023, exceeding average incomes, forcing many households to turn to loans with high interest rates.
New Zealand also entered a recession, with its GDP contracting by 1% in the July-September quarter, following a revised 1.1% decline in April-June. This six-month contraction marks New Zealand's weakest economic performance since 1991, outside of the COVID-19 pandemic, according to Kiwibank Economics.
Also Read: Bankruptcies rise as Japanese struggle with mounting debt
In contrast, the US economy remains resilient. Goldman Sachs recently lowered the probability of a US recession in the next 12 months to 15%, down from an earlier forecast of 20%, citing a resilient job market.
This aligns with the long-term average probability of 15%, noted Jan Hatzius, Chief Economist and Head of Goldman Sachs Research, in the team’s report.
“There’s no sign of a recession. If markets and the economy are doing well, you might get some stress in pricing, leading to inflation,” said Bhaskar Laxminarayan of Julius Baer, suggesting that inflation, not recession, may be a bigger concern in the US.
However, the strength of the US dollar, driven by capital flows from emerging markets, has created significant headwinds for countries in Asia, excluding Japan, according to Rajeev Agrawal of Doordarshi India Fund.
Also Read: Mark Matthews on why US market could dip 20% in 2025
Adding to global uncertainty are geopolitical risks and trade policies. President-elect Donald Trump’s plans to introduce a new tariff regime after his January 2025 inauguration could further disrupt global trade, exacerbating economic pressures.
Geopolitical tensions, including ongoing conflicts in Ukraine and the Middle East, as well as political gridlock in major European economies like Germany and France, continue to weigh on global stability
Mark Matthews of Bank Julius Baer emphasized the inherent difficulty of predicting recessions, citing the complexity of economic systems.
“Recessions are impossible to predict. Economists who forecast them are just lucky, that’s all,” he said.
Matthews warned that vulnerabilities, such as high market valuations and inflation risks, could make 2025 particularly fragile.
Also Read | UBS believes Indian property market is far from the peak
While these signs of strain are concerning, some analysts remain optimistic.
JP Morgan estimates only a 15% probability of a global recession in the first half of 2025, suggesting that while risks are present, a downturn is not imminent.
However, Bruce Kasman, Chief Economist at JP Morgan, warned that if the US adopts sharply protectionist policies, such as curtailing trade or large-scale deportations, it could create a significant global supply shock. “The disruptive impact would be amplified by retaliation and a global sentiment slide, posing a major threat to the global expansion next year,” he said.
First Published: Dec 24, 2024 6:46 PM IST
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