uploads/2015/09/Low-Commodity-Prices-Have-Impacted-the-Brazilian-Economy-2015-09-22211.jpg

Why Is a Global Recession Unlikely?

By

Updated

What’s to come after 2015?

Looking ahead to 2016, the big risk to U.S. stocks remains an emerging market-induced global recession. Emerging markets account for a growing percentage of global growth, and the recent slowdown in the emerging world isn’t limited to China, as data from Bloomberg demonstrate. Economies in Brazil and Russia are contracting, and most large emerging markets, with the possible exception of India, are slowing, according to the data. But while 2016 is likely to be another year of slow global growth, I don’t foresee a global recession. While China remains a genuine threat, the government has additional monetary and fiscal tools to manage its slowdown. As such, I also don’t see a bear market starting during the first half of 2016.

Global Recession Is Unlikely

Article continues below advertisement

Market Realist – A global recession is unlikely.

The slowdown in the Chinese economy has had many side-effects. China (FXI) is a major market for commodities, so more evidence of a hard landing in China led to a major slump in commodity prices. Commodity-exporting economies are already reeling due to low commodity prices.

Russia (RSX), a major oil exporter, is in a deep recession, with its GDP (gross domestic product) slumping by 4.6% in the latest quarter. Brazil (EWZ), a major exporter of raw materials, has also entered recession territory, with its GDP falling by 1.9%, unannualized, in 2Q15.

However, not all emerging markets (EEM) are negatively affected by low commodity prices. Emerging Asian economies, including China and India (INDA), are big importers of oil. Lower commodity prices are a plus for these economies.

As we mentioned earlier, the United States is a relatively closed economy that’s less affected by a slowing global economy. It’s more dependent on consumer spending. However, companies with international exposures could be negatively affected by the slowing demand elsewhere.

Advertisement

More From Market Realist