With markets and financial confusion increasing into this still-young year, it’s worth asking whether recession is something that should be expected in the coming months. That’s because many indicators are already, well, indicating, that that’s where we’re headed. While every economic indicator may not be flashing red yet, enough important ones are signaling warning signs of an economic slowdown ahead.
A couple weeks ago I wrote about a Fed official who had recently said that the Chinese economy was “not a significant risk” to its policy expectations and U.S. economic forecast. Such a comment was questionable then and downright laughable now, after observing the last few weeks in the financial markets. As of Friday, February 12, 2016, the Chinese stock market, as measured by the Ishares large-company China 25 index, was down more than 40% from its peak in April of 2015 (see chart below), down to levels seen back in 2012 (Chinese small companies have seen even larger declines over the past year). China’s markets are tumbling, its economy is turning down, and the U.S. and the rest of the world may be powerless to stop China’s implosion from infecting the world.
David A. Pace, CFA
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