Is The World Heading Into Recession?
US President Donald Trump's tariffs have sparked turmoil in global stock markets, but does that signal an impending recession?
First off, it's important to note that stock market fluctuations don't directly reflect the overall economy—just because share prices drop doesn't automatically mean economic hardship is on the horizon.
However, there are times when they do indicate trouble.
Significant declines in stock market values, like what we're seeing now, suggest a major reassessment of future profits for the companies that make up these markets. Investors reasonably anticipate that higher tariffs will lead to increased costs and decreased profits.
While this doesn't guarantee a recession, it certainly raises the likelihood compared to before Trump introduced the most extensive tariffs we've seen in a century. A recession is defined as a period where the total spending and exports by individuals and the government decline for two consecutive quarters.
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From October to December last year, the UK economy saw a slight growth of just 0.1%, but recent data indicates it contracted by the same amount in January. We'll get the first estimate of the UK's economic performance for February this Friday.
So, we're still quite a bit away from determining if we've met that recession definition.
In the midst of the stock market chaos, there are some particularly alarming and severe losses.
Banks are often viewed as indicators of economic health. A respected market analyst mentioned to me today, "The thing that made me catch my breath was the fall in the banks."
HSBC and Standard Chartered, which play a crucial role in international trade between the East and West, both saw their shares drop over 10% overnight before bouncing back a bit.
Other troubling signs are emerging not from stock markets but from commodity exchanges. Prices for copper and oil are seen as key indicators of global economic well-being. Since Trump announced his tariff changes, both have plummeted by more than 15%.
Global Recessions Are Rare Occurrences
The 1930s, the aftermath of the Great Financial Crisis, and the panic during the pandemic are three notable instances of synchronized downturns across major economies.
While it's still deemed unlikely that we'll experience something of that magnitude this time, many economic analysts have significantly raised the odds of a recession in the US, UK, and European Union.
On a brighter note for UK Chancellor Rachel Reeves, the government's borrowing costs are expected to decrease by about £5bn to £6bn annually as investors seek the relative safety of government bonds.
However, this will likely be overshadowed by declines in government tax revenues if and when the economy takes a downturn.
Final Thoughts
This entire mess could have been avoided with a bit of grown-up politics. Instead of ego-driven posturing, we needed world leaders to sit down, talk, and work out solutions like responsible adults. But Trump chose bluster over diplomacy, setting off a chain reaction that’s destabilizing markets, hurting ordinary people, and pushing economies toward recession.
It didn’t have to be this way. The fallout we’re seeing is the direct result of arrogance and a refusal to engage in sensible negotiation. Real leadership demands maturity and collaboration—traits clearly absent in Trump’s reckless, short-sighted approach to global economic policy.
