• Major U.S. trading partners, including Britain, Germany and Japan, have recently fallen into recession as inflation and high interest rates strain businesses.
• Experts interviewed by the Daily Caller News Foundation say the U.S. has avoided a recession so far, but could be dragged into economic turmoil as trade and international business decline. .
• “Due to the vast trade networks that begin and end in the United States, many small countries will eventually experience economic slowdowns or recessions that will impact the economies of larger countries,” said Peter Earle, an economist at the American Institute for Economic Research. “We will give them the same amount of money,” he told DCNF. . “Unless the recession these countries are in is shallow and short-lived, it will eventually affect U.S. consumers.”

Experts told the Daily Caller News Foundation that the recession currently plaguing some of the world's major countries could cause the United States to be dragged into its own economic downturn.

Germany announced on Monday it has entered a technical recession in the fourth quarter of 2023 after reporting two consecutive months of negative growth, as several other top economies face economic difficulties. did. Although the United States has managed to avoid recession thanks to its size and diverse industries, slowdowns in foreign economies could drag down the U.S. economy through trade changes and global inflation, leading to losses for U.S. businesses. Yes, experts told the Daily Caller News Foundation. . (Related: Biden's latest economic talking points are off the mark. Here's why)

“At a time when the U.S. economy is facing serious challenges from a commercial real estate crisis that could lead to a wave of regional bank failures, the rest of the global economy is also weakening,” said Desmond, a senior fellow at American Research.・Mr. Luckman stated. Enterprise Institute told DCNF. “This will reduce the U.S. export market and increase the likelihood of a recession by the end of the year.”

The U.S. economy has so far avoided a recession, despite predictions from major banks and investors that one would materialize. Gross domestic product (GDP) grew by 3.3% year-on-year in the fourth quarter of 2023 and by 4.9% in the second quarter, well above typical growth rates.

The U.S. commercial real estate sector currently has approximately $2.81 trillion in loans due by 2028, with rising interest costs and reduced demand for office space squeezing profits and repayments. There are obstacles in the way. Small and regional banks are particularly at risk due to their large exposures to commercial real estate debt, which could contribute to another banking crisis if developers fail to pay their debts.

“The UK and Germany are already in recession as a result of the need to raise interest rates to deal with high inflation,” Lachmann told DCNF. “Like the U.S., these countries also face commercial real estate challenges due to increased work from home and online shopping following the coronavirus pandemic, which could strain banking systems and slow economic recovery. there is.”

The UK experienced similar inflation after the supply shock caused by the coronavirus pandemic, with inflation in October 2022 at 11.1% year-on-year, and as of January, it had only slowed to 4.0%. according to to Reuters. The Bank of England has set interest rates at 5.25% to curb high inflation.

The Conference Board's main economic indicators fell again in January, but they gave up on forecasting a recession and instead said growth would only slow. We are faced with the reality that if governments are prepared to spend/borrow/print enough, we can avoid a “technical” recession for many years… pic.twitter.com/oy1MYb1Hs9

— Dr. EJ Antoni (@RealEJAntoni) February 20, 2024

“Higher prices mean less purchasing power, which means less consumption,” Peter Earle, an economist at the American Institute for Economic Research, told DCNF. “Many are also experiencing lower business confidence and reduced capital investment. All of this is due to the massive financial expansion to fight the coronavirus and the non-pharmaceutical enforcement measures such as lockdowns and curfews. These are the medium- to long-term effects of such interventions.”

China has some of the world's strictest coronavirus restrictions in place as part of the country's zero-coronavirus policy, which will last until December 2022. China's economy has since failed to return to pre-lockdown growth rates and faces further pressure from China. deflation.

Global supply chains continue to face disruptions beyond the COVID-19 pandemic, with the global shipping industry recently suffering major disruption from attacks by Iran-backed Houthi militants in the Red Sea, and the Suez Shipping routes through the canal are blocked. At the same time, the drought around the Panama Canal is shortcutting the number of ships allowed to sail each day, with both disruptions adding extra costs and increased transit times to global shipping costs. I am.

France attributes some of its poor economic forecast to trade disruptions through the Red Sea, conflicts in Ukraine and the Middle East, and economic problems in China and Germany. according to to Reuters. The country is forecasting GDP growth of just 1% in 2024.

“China's economy, the world's second-largest, is now headed for a significantly slower economic growth trajectory as a result of the bursting of the massive housing and credit market bubble,” Lachmann told DCNF. “China's economic slowdown is causing serious problems for its economic partners in Asia, including Japan, which is also currently in recession.”

China's real estate sector is currently in crisis after most of its top developers have defaulted on their loans, and the country announced on Tuesday that it would sharply lower reference interest rates for mortgages in a bid to revitalize the sector. according to to Reuters. Evergrande Group, a major Chinese developer, has been ordered to liquidate more than $300 billion in debt after failing to come up with a new restructuring plan.

Related to China's economic downturn, Japan's GDP decreased by 0.4% in the fourth quarter of 2023, after decreasing by 3.3% in the third quarter of 2023. according to to Reuters. Japan's economy has been experiencing slow growth for a long time, and interest rates are currently negative to encourage economic activity.

“The United States is at risk of recession even if other countries are not in recession,” Earl told DCNF. “A recession in a country that buys a lot of U.S. exports means less income for U.S. exporters. Additionally, if a particular country prioritizes domestic consumption over exports, a recession in a foreign country can cause There may be fewer goods and services imported into the United States than Americans are accustomed to.”

Countries suffering from economic recession are the top trading partners of the United States, with China, Germany, Japan, and the United Kingdom all in the top seven. according to To the Census Bureau. U.S. exports rose amid relative economic resilience in 2023, but imports fell as many global trading partners experienced economic turmoil. according to to Reuters.

“If there's a silver lining to the global economic downturn, it's that it should help the Fed fight inflation,” Lachman told DCNF. “Global food and energy prices are likely to continue to ease due to lower demand and lower import prices, especially those from China, which are expected to export deflation to the rest of the world.”

U.S. inflation remained high at 3.1% in January, far from the Fed's 2% target. To combat high inflation, which reached 9.1% in June 2022 under President Joe Biden, the Fed set the federal funds rate in a range of 5.25% to 5.50%, the highest rate in 23 years. did.

“Because of the vast trade networks that start and end in the United States, small countries that experience economic slowdowns and recessions will eventually impact the economies of larger countries,” Earl told DCNF. . “Unless the recession these countries are in is shallow and short-lived, it will eventually affect U.S. consumers.”

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