A Global Recession Caused by Trump?

The WTOI leading indicator suggests a further weakening of international trade in Q3-2019


Conjuncture Uncertainty Trade war Global economic trends

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In recent days, the World Trade Organization (WTO) has published the August update of its World Trade Outlook Indicator (WTOI [1]). The index recorded a further decline compared to the already low level recorded in H1-2019, signaling how world trade is still experiencing a phase of stagnation or even decline.

World Trade Outlook Indicator

Recent news on the world economy had already created expectations of continued weakness in world demand, if not further deterioration. The update of the WTOI indicator reinforces these expectations. The weakness of purchases of, above all, intermediate goods (raw materials, semi-finished products and components) and capital goods for industry from abroad, suggests that the determinant of the current negative global cycle is the high level of uncertainty on economic policy actions.
The following chart shows a measure of global uncertainty, updated to July [2].

Economic Policy Uncertainty

As evident from the graph, uncertainty about the political actions of various governments has never been as high in this century as in 2019. Certainly phenomena such as Brexit, the currency crisis of some emerging countries, tensions between Sovereignists and Europeanists within the EU and the Hong Kong crisis have significantly affected the economic cycle. But the dominant factor arguably has been the trade war triggered by the Trump administration: not so much for its contents, but rather for the ways in which it has been and is managed, with continuous changes of intensity, fronts and objectives.
In our view, if in the coming months the Trump administration's actions will continue to adversely affect the chances for a global economic recovery, it is likely that, in November 2020, President Trump will receive a clear message: "It's the economy, stupid!".

[1] For a description of WTOI index methodology, see the article "Has the global slowdown stopped?".
[2] For an introduction to the Economic Policy Uncertainty (EPU) Index, see the article "Uncertainty reigns supreme".