Steen Jakobsen back on, Chief Investment Officer of Saxo Bank, returns to the podcast this week to share with us the warning signs of slowing economic growth he's seeing in major markets all over the world.
In his view, the world economy is sputtering badly. So badly, that he's confident predicting a global recession by 2018 — or sooner:
The 'credit impulse' — defined as net new credit to GDP — has gone negative in the world for the first time since the start of the Great Recession that we had in 2008 -2009.
And the lead is coming again, as always in the last 10 to 15 years, from China. Basically, China's net credit impulse has gone from double-digit positive to almost double-digit negatives. And I can tell you, having just been on the ground in China for a couple of times in the last three months, everything’s at a standstill. This is very important as China is responsible for 50% of all new growth, as well as a huge chunk of every new credit dollar that has been created in recent years.
Just to take the long story shorter, so basically what we figured out is that the credit impulse leads by 9 months. In other words, the pickup we saw in economic activity in December and January was created 9 months prior, and if you look back to Q1 of 2016, we had the worst start to the year in the equity market for very long time. Consequently, the central banks panicked, especially the ECB, the Bank of Japan, and to some extent, the Federal Reserve. This made huge credit impulse that peaked in April/May of last year. Fast-forward 9 months, and we saw a peak in economic activity and inflation. Ever since, we’ve seen a dramatic deterioration, and this is all based on this 9-month lead which is coming out of China, now been confirmed to be negative, as well the US.I know it’s a long answer, but I think it's important information. Basically, I'm thinking right now, unfortunately, that there is a 60% probability for a recession inside the next 18 months. And probably the most likely period for that to happen would be end of this year because, of course, Trump has not delivered.
Click the play button below to listen to Chris' interview with Steen Jakobsen (32m:43s).