By Drummond Brodeur
I expect to see a significant global economic slowdown in the next 12 months, with a high chance of a recession around this time next year. I’m not concerned whether we see back-to-back negative quarters; a recession is defined as a significant slowdown in aggregate demand, which is highly likely in the next year in my view. While I believe the direction is set, the pace and severity will remain very policy-dependent. The primary driver of the slowdown is what I am calling a “geopolitical recession” (term borrowed from Eurasia Group) that is creating a permanent state of endemic uncertainty and instability in the global political economy. It is a shift from four decades of increasing globalization to one of deglobalization and collapsing global governance. The escalation in the global tech and trade wars will drive a decoupling of global supply chains and significantly lower economic growth. I expect the negative impact on earnings to be significant, as decades of increasingly complex interconnectivity cannot be unwound without unintended consequences.