Mark your calendars. The next U.S. recession will begin in 2020.
That’s according to everyone from Zillow, to Goldman Sachs, to three-quarters of JPMorgan’s ultra rich clients, and groups of economists surveyed by the Wall Street Journal and Reuters.
But what will spark the next U.S. recession will also create a domino effect, triggering global financial contagion.
“The risk of a recession really picks up after a year, or sometime in 2020 because that is when you start to see the fiscal stimulus start to fade,” said Joseph Song, a senior U.S. economist at BofAML.
“That is when you return to trend or potential growth, which is below 2 percent, and if you get some sort of a negative shock – whether it is a normal oil shock, or a dollar shock – then you start to see growth get hurt and potentially turn negative.”
Since the financial crisis, the last decade has been marked by financial repression through regulation and dominating central banks, quantitative easing, weak productivity growth and stagnant wages, subdued inflation, uninhibited trade and capital flows, and low market volatility.
But now a very different landscape is beginning to emerge. Central banks are retreating while fiscal policy becomes more expansionary, the regulatory conversation is moving from the financial sector to tech, and economic nationalism and protectionism are rising.
Trade wars and new tariffs dominate headlines. Geopolitical risk is ramping up. And what could make the next recession riskier than normal is that inflation expectations are still very low almost everywhere, and structural weaknesses in the eurozone are exposing themselves.
That means that whatever sparks a recession in the U.S. will quickly spillover into Europe before spreading across the globe. And since interest rates are still near historic lows, central banks’ balance sheets are bloated, and fiscal deficits are larger, there’s a limit to the fiscal policy available to fight a global recession, making the pain last far longer than it otherwise would.
So buckle up for a bumpy ride as the storm coming in 2020 is likely to spell trouble for the decade ahead.