Global markets are at or close to all time highs on back of signs of better US economic growth outlook, liquidity push by global central bankers & recovery in commodity prices from its 2015 lows.
Time for a global recession again ?
The next global recession the world is going to witness shall be from Europe / China or both.
China has been BORROWING $ 6 for a GDP growth of $ 1. On detailed historical observation The United States of America pre Lehman crisis, borrowed $ 3 for a GDP growth of $ 1.
There has been observed stagnant or negative growth in European continent as a whole. Major European banks are at the verse of bankruptcy. Post brexit the situation has worsened. Much below IIP growth posted by the European growth engine Germany, was the confidence breaker. When a country as fundamentally powerful as Germany fails to post results, investors can expect no gold rush in other European countries. Several European banks are in extreme stress with a total pile of 1 trillion $ debt. If one major bank fails, it shall have major ripple effect on whole financial framework. European banks have started to trim EM exposure. RBS has already sold it’s india business to RBL bank, HSBC & standard chartered are trimming their operations.
If European banks fail, the first ones to get caught in the ripple effect will be Chinese banks which are most vulnerable in present scenario, amplifying it’s impact making it the worst recession the globe has ever witnessed.
Unless growth does not pick up in europe, which is not likely to, investors should be ready to face the worst.