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12/23/15

Global Economy: Will There Be a Global Recession in 2016? - by Brad Hoppmann

The Fed’s first interest rate hike in nearly a decade is now official. That means the central-bank domination of the financial markets is behind us — at least for the very short term.

Two of the reasons cited by Janet Yellen & Co. for finally engaging in rate "lift-off" were an improving U.S. economy, and an improvement in the labor market.

Still, the Fed was cautious. Members argued that they expect economic conditions to evolve in a manner that will warrant only "gradual" increases in the Fed Funds rate.

The U.S. economy is generally regarded as being in decent shape. But at least one analyst says it is not in good enough health to fend off continued weakness in the global economy.

e argues in a Barron’s interview that those who are bullish on the U.S. economy are widely underestimating the potential threat of a downturn in the emerging markets due to the economic linkage between the two regions.

Levy actually thinks that 2016 could be the year of a global recession, and that this would precipitate a plunge in bond yields.

Two years ago, Levy was concerned about China’s slowing and how that would affect emerging markets. Now, he seems to be more concerned about the bursting of the emerging market bubble.
 … this time around, it’s the emerging market expansion bubble that’s starting to break down. Even by the start of 2015, there were a few countries in recession. In other countries, such as Taiwan, there’s clearly a general decline in the strength of the expansions. By the time we get third-quarter data, I expect to see that more of those countries are in — or very close to — recession.
Read more: Will There Be a Global Recession in 2016?

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