Protectionist economics are unlikely to cause a fresh global recession unless protectionist policies from the world’s economies escalate further.
This is according to NKC African Economics CEO and Chief Economist Adrian Cooper, who was speaking at a colloquium organised by NKC Economics in Cape Town on Thursday morning.
The colloquium comes amid what some have described as a wave of protectionist policies sweeping several developed economies, including the United States and the United Kingdom. These have been characterised, among other things, by increasingly tense trade discussions between the US and China, and the United Kingdom’s decision to leave the European Union.
According to Cooper, clients have expressed concern to NKC African Economics about the risk of a global recession as a result of the fallout from these and similar events.
Cooper said while the global economy was slowing, the pattern of the slowdown resembled the years 2015-2016 more closely than 2008, or any of the patterns observed in the global economy in the years preceding that year’s global economic crisis.
“There are things going on in the world economy that have a lot of people worried. The boom we saw is slowing and it is increasingly getting stagnant in terms of world trade.
“On the other hand, data for the big economies shows GDP growth was a bit stronger than anticipated,” said Cooper.
Cooper said the rate at which the global economy grew eventually had to get in line with its productivity, saying it “had to happen”.
“We couldn’t continue to grow the way we did in the first half of 2018 for much longer. Unemployment rates globally have been falling but it cannot continue to fall at this rate for much longer. The economic growth must fall in line with its production potential eventually,” Cooper said.
‘Things have to get a lot worse’
He said even though protectionist populist policies were unlikely to trigger a recession, policy makers had to be very imaginative to fight the next global economic downturn, should it come.
“I’m not pretending that trade wars can’t cause a global downturn. But things do have to get a lot worse on that front before it causes the worst-case scenario.
“Secular stagnation challenges will hold back growth in the medium term. Populist pressures are therefore likely to continue to increase, and policy makers will need to be more unconventional policies in the face of the next recession,” he said.
He said the risk of a recession would only escalate if the tariff threats the United States has used in its engagements with countries like China and Mexico are in fact implemented.