US economic growth keeps signalling a looming recession

The U.S. economy is continuing to stall, begging the question about the next recession.

The latest data on manufacturing sector was the weakest in a decade. While GDP growth is still hovering at the 2% mark, economists believe the U.S. can wobble at 1%-1.5% without falling over, estimating the likelihood of the next recession to kick in around mid to late 2020.

Whether the longest expansion in history since the 2008 crisis remains intact may ultimately depend on whether consumers are able to maintain spending enough to offset the slump in manufacturing amid the U.S.-China trade war.

However, lackluster economic performance could very easily translate into consumers and companies pulling back, and that is when a mild slowdown can easily become worse.

As economic growth withers, there is not much room for the Fed and policy makers to provide fiscal and monetary stimulus in a timely fashion which raises the risk of the end of the economic cycle.

While a slower stall speed means the economy can still expand at a more subdued pace without signalling recession, the bad news is that it doesn't mean the U.S. markets are less exposed to a downturn in such a scenario.

Equity markets continued to react to weak leading indicators as markets fell across U.S., Europe and Asia. Investors are weighing their options as monthly data continues to confirm a global slowdown. As a result, VIX (CBOE Volatility Index) hiked up towards the 20 mark on the 1st of October, from 13 in mid-September.

S. Khan

Head of Investment Research