The recent increases of Trump duties They significantly raise the risk of a global recession, potentially causing deeper economic damage in the short term. Explains it Jacob Falkencrone, Global Head of Investment Strategy by BG Saxo and Saxo Bank also underlining that investors “must keep calm, diversify the wallets and be patient: market storms always pass, but disciplined investments resist “.
What exactly is a recession?
We have to think about the economy as a gigantic engine. When you hear the hum, the jobs are abundant, companies invest and people spend freely. A recession occurs when the cracking engine, the growth blocks, the jobs disappear and the consumers hold the cords of the bag. From an economic point of view, it is when the gross domestic product (GDP) of a country, or the total value of all the goods and services produced, is significantly reduced for at least two consecutive quarters.
From the end of the Second World War in 1945, we witnessed 13 recessionsabout one every five or ten years, of the duration of about ten months each each. They are painful but inevitable parts of our economic rhythm, triggered by practically anything: from the increase in interest rates to financial bubbles, to commercial conflicts – such as the one on the duties we see today.
Because Trump’s duties play an alarm bell
Recent increases in rates – explains the expert – do not only concern the fact that imported products become more expensive, but create a profound economic uncertainty. Companies hesitate to invest, consumers become cautious and the economy slows down. An analysis indicates that the last increases in Trump’s duties could cost At each American family around $ 1,350 more per year And slowly slow down investments and the creation of jobs. These dramatic changes rarely pass without significant economic repercussions. We have already learned this lesson. The notorious ratesand Smoot-Hawley Of the thirties they transformed a recession into the great depression, while the retaliation rates strangled global trade. Today’s duties, equally extreme, risk repeating that harmful spiral.
Lessons from history: how serious could it be?
In a historical analysis which has covered all recessions since 1945, clear models emerge. The recessions generally last about ten months, causing a drop in the stock market of about 29% From peak to minimum. Interestingly, the actual recession periods are not usually the most harmful for investors. On average, the shares actually gained about 1% during recessions. Most of the damage is done shortly before the official start of the recessions, since Markets anticipate the recession.
Another important lesson that investors can learn from history is that, as soon as the economic sky lightens, Markets tend to rebound quickly And strongly. Historically, after the markets touched the bottom, the average returns in the following 3, 6 and 12 months were 19% respectively, 26% and 41%. Once the storm has passed, the markets will not limit themselves to recovering, but will bloom. Yet not all recessions are the same. The worst, like the 2008 financial crisis, inflicted serious economic scars, sweeping away almost 60% of the value of the stock market. On the contrary, the milder recessions, such as those subsequent to wars or short shocks of the offer, proved to be relatively superficial and short -lived.
What makes a recession serious? Generally, deeper problems such as financial instability or widespread economic imbalances – exactly the type of risks that are intensified by prolonged commercial tensions and uncertainty.
Could the “stagflation” reappear?
There is another worrying possibility: the “stagflation”, the worst scenario of the economy that combines the recession, or Economic stagnationwith the increase in inflation. The duties can cause precisely this: slowing down growth (dampening the question) and at the same time make everyday assets more expensive (increasing costs). If inflation overheats during a recession, the central banks are faced with a scenario without way out: fighting inflation by increasing rates, worsening the recession, or stimulating growth, risking agalloping inflation. This happened in the 70s, and today’s echoes are worrying similar. Investors should keep this risk in their radar.
Mild rain or torrential storm?
How serious could a recession triggered by the current commercial war be? Historically speaking – continues the expert – The recessions due to duties tend to be more serious, since global trade is an integral part of modern economies. Trump’s duties for the “day of liberation” risk putting an already vulnerable global economy in serious difficulty.
Although we still don’t know exactly how deep this recession could become, the concerns of economists have intensified significantly. It is not just alarmism: there is the real possibility that this is one of the hardest recessions of the last decades if the current tensions should intensify further.
What does all this mean for investors?
It is natural that investors feel nervous right now. But the story clearly shows us that Panic is the worst possible answer. Investing intelligently in uncertain times does not mean avoiding storms, but facing them with skill. Here’s what investors should consider right now:
- Keep calm and Avoid sales Dictated by panic: in the past, those who have maintained the nerves firm during the volatility of the market have come out stronger.
- Diversify investments: evaluate to divide the risk on different sectors, regions and classes of activity. Avoid a strong concentration in vulnerable areas.
- Build or maintain an emergency fund: Keep a treasure at hand so as not to be forced to sell during the recessions.
- Take into consideration gradual investment: Buying high quality actions at lower prices during market drops can significantly repay when the recovery arrives.
- Privilege quality and stability: defensive sectors such as health, basic necessities and actions that pay strong dividends generally obtain better performance during recessions.
Finally, it must be remembered that “the markets historically reward patience, not panic. So the The stronger defense in a recession is the discipline “.
