- UBS slashed its global growth forecasts, saying that the global economy is “much closer” to a recession.
- UBS described August’s trade-war escalation as a “game-changer,” bringing tariff volumes closer to what the bank modelled as a worst-case scenario.
- The report likened the situation to “like the frog getting boiled” in terms of falling into a global economic crisis.
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UBS slashed its global growth forecast, revising its expectations for 20 different countries, and Donald Trump’s trade war takes the blame.
UBS economists Arend Kapteyn and Pierre Lafourcade said in a research note on Wednesday that August’s tariff escalations “take us much closer to the global recession.”
Kapteyn and Lafourcade said that their prior model had global growth at around 3.2%, moving up to 3.4% in the second half of next year. Now, the economists revised that estimate down to 3.17% for 2020.
The UBS economists likened the crisis to feeling “a bit like the frog getting boiled,” in that each time a new tariff was implemented, the spread was far enough to analyse the impact on its own and not look at the tariff war as a whole.
UBS described August’s trade-war escalation as a “game-changer,” bringing tariff volumes closer to what the bank modelled as a worst-case scenario.
But taking their own model from June, in dollar terms, the two economists say that the US tariffs are now “around 78% of the amount we had assumed was worst case.”
The two economists also added that previously, their assessment of the disruption cause by tariffs “qualified as a (mild) global recession” saying it was about equal to “the mid ’80s oil collapse, the mid ’90s Tequila crisis and the Eurozone crisis.”
Now they say that we are now 85% of the way to the bank’s original assessment of a June worst-case scenario assessment in terms of reduction in global GDP.
However, Kapteyn and Lafourcade did say that “spreading the tariffs out over a four-month period rather than imposing them all upfront, gives businesses some time to adjust,” so the effect of the tariffs hasn’t been felt as much as expected.
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