Economists forecast a new crisis in the US in 2020

Economic indicators in the United States are at a very high level. Unemployment reached the 18-year low, reaching 3,8% in May. It is expected that by the end of the year wages in the country will increase by an average of 3%. In addition, according to forecasts, the American economy in 2018 will grow by almost 3%.

Фото: Depositphotos

However, the country is experiencing a too high level of economic activity and growth, which is why many economists expect the recession to occur next year, writes USA Today.

Half of the economists surveyed in May by the National Association of Business Economics predict a recession from the end of the year 2019 or at the beginning of the year 2020, and two-thirds believe that the recession will begin by the end of the year 2020.

Why?

Precisely because everything is going very well. Typically, rapid growth and high economic activity make a country's economy the most vulnerable. Typically, as unemployment falls, inflation rises and the Federal Reserve raises interest rates to cool the economy, but often these measures go too far and investors and consumers flee the market.

However, this is not enough to start a crisis, some other factors are needed. In 1990-1991, this factor was the shock effect of the sharp rise in oil prices, in 2001, the stock market decline, in 2007, the collapse of the real estate market led to a crisis.

Economists identify several possible scenarios for the development of the crisis in 2019-2020:

Rising inflation and asset prices

This is the most likely path to recession. Falling unemployment and rising wages are good, but ultimately higher wages force companies to raise prices. Therefore, the inflation forecast of 1,8% may turn out to be incorrect, and this figure will actually exceed 2%.

That could prompt the Fed to raise rates faster, perhaps in four rounds in 2018 and 2019 instead of the three currently projected. Higher rates and concerns about inflation are making borrowing more expensive for consumers and businesses, including rising mortgage rates, reducing home sales as well as business investment.

Federal tax cuts and increased spending may further inflate the economy’s deficit at the national level and lead to a further increase in the Fed rate.

This can be seen right now: interest on credit cards amounted to 2,54% of the debt in the first quarter of 2018, compared to 1,96% in 2015. This can have a profound effect on low- and middle-income Americans.

A factor that could trigger a recession in this scenario is high asset prices. 500 shares Standard & Poor's for the last 4 of the quarter, their owners made a profit in 19,6 times their costs. According to Thomson ReutersThis is above the average for the last 50 years.

Nonetheless, rising labor costs can reduce a company's profits, which makes stock prices even more overpriced. As investors become less confident about the safety of investments, they can take away their investments in order not to risk them, not only in stocks, but also in construction, bonds, etc. This will be the impetus for a decline.

Other triggers that can trigger a recession:

Escalation of trade conflicts

President Trump has introduced 25% steel tariffs and 10% aluminum. This is expected to lead to higher prices for consumers and businesses, as well as retaliation from other countries against US exports. However, the impact of this situation on the economy, according to experts, will be insignificant.

150 carries a higher risk of billions of dollars in tariffs that Trump threatens to impose on Chinese imports, and the potential retribution of China.

These steps can boost consumer prices and lower exports, thereby lowering the growth of the US economy by more than one percentage point next year.

Rising energy prices

According to Moody's, the rise in oil prices has contributed to every economic recession in the United States since the Second World War, undermining consumer purchasing power. US crude oil prices are around 65 dollars per barrel in June 2018, a significant increase from the start of 2016, when a barrel cost about 26 dollars, but prices are now significantly lower than 112 dollars per barrel, which were observed in 2014. The average price of gasoline at the moment is slightly less than 3 dollars per gallon compared to more than 4 dollars in 2014 year.

However, if conflicts between Iran and Saudi Arabia intensify, this can lead to higher prices for oil and gas.

Another cause of problems in this area could be the new ruling of the International Maritime Organization, which will limit the sulfur content of fuel oil used by ships since 2020. Some analysts believe that this decision will significantly increase US fuel costs and lead to an increase in average gasoline prices, once again setting them at the level of 4 dollars.

Budget conflicts

Earlier this year, Congress raised budget expenditures on 300 billion, with most of the funds associated with higher defense spending, but this deal between parliamentarians expires at the end of 2019. And at the end of 2019, it will be necessary to increase the country's debt limit. Both of these issues lead to conflicts in Congress, especially they will intensify if the mid-term elections this year lead to a more even distribution of seats between Democrats and Republicans.

Parliamentary confrontation, according to some economists, may help push the US into a recession. For example, the inability of Congress to raise the national debt limit at the start of 2011, prompted Standard & Poor's reduce the credit rating of the United States, which reduced the credibility of the country of investors, many of whom left the US market.

Problems abroad

The new government in Italy has promised to reverse the austerity measures and provide citizens with a minimum income. Such measures may again drive the country into a debt crisis, they may also pose a threat to European banks, creating new risks for the European economy, and thus damaging US stocks and exports.

Read also on ForumDaily:

500 Presidency Days: What Trump Reached

How the US banking system works and how reliable it is

A historian who predicted the 2008 financial crisis of the year warned of a new threat

George Soros warned of the imminent start of the global financial crisis

Do you want more important and interesting news about life in the USA and immigration to America? — support us donate! Also subscribe to our page Facebook. Select the “Priority in display” option and read us first. Also, don't forget to subscribe to our РєР ° РЅР ° Р »РІ Telegram  and Instagram- there is a lot of interesting things there. And join thousands of readers ForumDaily New York — there you will find a lot of interesting and positive information about life in the metropolis.