Global economy steps back from the edge

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The world is no longer teetering on the brink of a full-blown recession thanks to a rally in global stock markets and surging commodity prices, according to a new report out today.

Researchers at Oxford Economics said that there are slightly fewer alarm bells ringing over the health of the economy today than there were in January, when markets seemed to be in freefall and oil prices were headed for $20 a barrel.

Oxford Economics’ recession risk model came in at a score of 3.3 - on a zero to five scale - down from four at the start of the year.

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The number does not correlate to an actual prediction of how likely or unlikely a recession is. Rather, it shows how the world is performing on five different indicators compared to levels which have proved accurate barometers of previous recessions.

A score of 3.3 is “no longer at levels associated in the past with recession periods,” Adam Slater of Oxford Economics said. However, it does indicate a sharp growth slowdown is on the cards. In the 2001 contraction, the score came in above four, and during the final quarter of 2008 it hit five.

“Recession risk has not subsided entirely,” Slater warned. “The recession risk indicator remains at levels similar to those in 2011-12, when world GDP growth slowed sharply, to as low as 1.5 per cent.”

The five factors Oxford Economics uses in its calculations are global stock prices, real non-fuel commodity prices, US high yield spreads, US corporate credit conditions and G7 industrial output.

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Slater said that given the UK’s service-oriented economy, “if financial indicators are looking negative, that puts the UK as potentially one of the higher risk places”.

The latest GDP figures for Britain, to be released on Thursday, are expected to show a slowdown from the 0.6 per cent rate of expansion recorded at the end of 2015.

Full story: Global economy steps back from the edge: City A.M.

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