Economic discussions in the United States have increasingly revolved around one pivotal question: Are we already experiencing a recession or merely
bracing for a downturn that has yet to emerge fully?
Shifting corporate sentiment, considerable market volatility and ongoing trade disputes have all contributed to the conversation. Below is an in-depth
look at several indicators-particularly the current tariff environment- that may be setting the stage for a potential economic downturn.
The tariff effect: Catalysing market instability
President Trump’s tariffs are at the forefront. They were introduced to strengthen domestic industries and reduce trade imbalances. While those
objectives remain a primary justification, the prevailing impact has been growing uncertainty among investors and heightened tensions in global commerce. These developments have led many analysts to question whether tariff policies might be hastening a slowdown
by disrupting supply chains, raising production costs, and deterring new investments.
Larry Fink, CEO of BlackRock, garnered significant attention when he remarked that the United States may already be in the initial stages of a
recession. He is not the only influential figure raising concerns.
A recent
CNBC
survey found that approximately 69% of CEOs believe a recession is underway or imminent. In tandem, Goldman Sachs has increased its estimate of a U.S. recession’s likelihood from
35% to 45% within one week, reflecting the speed at which sentiment can shift.
Although the conventional definition of a recession hinges on two consecutive quarters of negative GDP growth, several warning signs suggest a
broader economic slowdown could already be taking shape. These include weaker consumer confidence, hiring slowdowns, and more cautious corporate spending. While none of these indicators definitively establish recessionary conditions, their combination may
signal that the economy is losing momentum.
A global shadow: The worldwide effect
Although the U.S. economy draws the most scrutiny, the effects of current trade policies extend far beyond American borders. Several key trading
partners, including China and the European Union, have implemented countermeasures, magnifying the strain on international supply networks. JPMorgan Chase CEO Jamie Dimon has warned that escalating trade frictions may squeeze consumers further, particularly
if retaliatory tariffs lead to higher prices on imported goods. A downturn in U.S. consumer spending could in turn affect industries worldwide, underscoring the risk of a broader global slowdown.
In evaluating scenarios for the near future, one possibility involves a more substantial decline in equity markets, potentially in the range of
the 20% drop that Larry Fink recently mentioned. Though a retrenchment of this magnitude is understandably alarming, it could be consistent with historical correction patterns observed during the late stages of an economic cycle.
Should the economy weaken further, the Federal Reserve may accelerate its use of interest rate cuts to encourage lending and purchasing activity.
Indeed, some forecasts suggest multiple rate reductions by 2025 to mitigate the intensity of any recessionary forces. However, these actions can also indicate a recognition that underlying economic fundamentals are required, particularly if trade tensions
and market volatility persist.
Source: LSEG
The Aftermath: Recovery and Renewed Growth
Historically, periods of recession, no matter how severe, have eventually transitioned into expansion phases. Typically, such recoveries are driven
by renewed confidence, adjusted monetary and fiscal policies, and technological advances. Today, resolving at least the easing of trade conflicts remains pivotal in stabilizing business confidence and investment flows. Encouraging signs include negotiated
settlements or diplomatic efforts that reduce tariffs and clarify international trading rules.
Technical outlook: Is the U.S. in a recession or just headed toward one?
According to experts, the signs are there. Traders must stay informed and flexible as the market reacts to economic signals. The volatility of
the next few weeks could be challenging, but it also presents opportunities as currencies and assets fluctuate. If the dollar continues to lose its strength, it could significantly shift the global currency landscape if other economies recover before the U.S.
does.
At the time of writing, EURUSD is inching up as the Euro gains on the dollar. The daily chart has some upward pressure bias as prices remain
above the moving average. However, prices inching toward the upper Bollinger band hints at overbought conditions. Key levels to watch on the upside are $1.1057 and $1.1148, while on the downside, the levels to watch are $1.0891 and $1.0796.
Source: Deriv MT5
Disclaimer:
The information contained within this article is for educational purposes only and is not intended as financial or investment advice. It is considered accurate and
correct at the date of publication. Changes in circumstances after the time of publication may impact the accuracy of the information.
The current performance figures quoted are only estimates and may not be a reliable indicator of future performance. The past performance figures quoted refer to the
past and are not a guarantee of future performance or a reliable guide to future performance.
No representation or warranty is given as to the accuracy or completeness of this information. Do your own research before making any trading decisions.
