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Nov. 20, 2019, 2:48 p.m. EST

These are the risks that could trigger a ‘vicious cycle,’ economist warns

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By Shawn Langlois, MarketWatch

Getty Images
What could go wrong?

From the trade war to a debt crisis and everything in between, there’s clearly a lot to be worried about in terms of the health of the global economy, according to Mark Zandi, chief economist at Moody’s Analytics.

“Recession risks for next year remain uncomfortably high,” he told MarketWatch on Tuesday. “The economy is barely growing at its potential, which means unless growth picks up soon, unemployment will begin to rise.”

Once that happens, he said, consumers tighten spending, businesses slash hiring and the economy gets caught in a “self-reinforcing vicious cycle.”

Here’s a slide — the chart of the day in our daily “Need to Know” column — that Zandi used in a recent presentation to show both the possible catalysts for a recession, as well as the extent of the impact they could have:

As you can see from the chart, Zandi’s most pressing concern remains the trade war and how it’s “undermining the global economy.” The uncertainty of the tariffs, he said, is “a pall over business investment and hiring.”

What happens on that front, Zandi predicted, will determine what’s next. “If the president follows through on his threat to raise tariffs again on China in December, a recession next year is likely,” he said. “However, if the president stands down and provides a clear path to winding down the tariffs, the economy will likely avoid a recession.”

Status quo on the trade front, he added, will leave the U.S. economy vulnerable to any number of other factors that could pose problems. “And judging by global geopolitics, including our own elections, a lot could go wrong,” Zandi said.

With those triggers hanging over the market, the Dow /zigman2/quotes/210598065/realtime DJIA +1.51%  , Nasdaq /zigman2/quotes/210598365/realtime COMP +1.99% and S&P /zigman2/quotes/210599714/realtime SPX +1.40% were all trading lower on Wednesday.

US : Dow Jones Global
+389.31 +1.51%
Volume: 191.20M
July 6, 2020 1:52p
US : U.S.: Nasdaq
+203.43 +1.99%
Volume: 2.83M
July 6, 2020 1:52p
+43.74 +1.40%
Volume: 1.34B
July 6, 2020 1:52p

Shawn Langlois is an editor and writer for MarketWatch in Los Angeles. Follow him on Twitter @slangwise.

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