Global growth is slowing, not in recession

A theme which has gained increasing traction is that the world economy could once again go into recession, with some reports that global growth is already in recessionary territory.

At a country-level, a recession is defined as two consecutive quarters of negative quarter-on-quarter seasonally-adjusted (real) GDP growth. By this metrics Italy was in recession in H2 2018 while Germany avoided a recession by only the narrowest of margins.

However, there is no universally accepted, clear-cut and easy-to-read gauge of whether the world economy is in recession. Loosely, a global recession refers to an extended period of economic decline around the world — at best a vague and subjective definition.

The IMF’s definition of a global recession is a “contraction of Purchasing Power Parity (PPP) adjusted World GDP per capita accompanied by a decline in at least one additional global macroeconomic indicator such as per‑capita investment, per‑capita consumption, industrial production or trade flows”.

The volume of global trade likely contracted for a third consecutive quarter in Q2 2019, according to our estimates using monthly data. However, growth in global GDP per capita has remained positive and a recession so far avoided (at least by the IMF’s definition).

Our own quarterly time series of global GDP, aggregating national figures using annual IMF PPP weights, shows that global growth has slowed gradually in the past 18 months, from a reasonably high base, but remained positive (see Figure 2).

We estimate that year-on-year global GDP growth slowed to 3.1% in Q1 and, based on global manufacturing PMI and US and Chinese GDP data, slowed further to 2.9% in Q2 2019 — its slowest rate since Q4 2009. However, this was partly due to above-average GDP growth of 0.95% qoq between Q3 2016 and Q2 2018, and we estimate that GDP growth was broadly unchanged in Q2 at 0.75% qoq or about 0.5% qoq adjusting for population growth.

We forecast that global GDP growth will slow further in the second half of the year (and that the IMF will have to again revise down its 2019 forecast) but will not go into recession.

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