Given the free-fall decline in worldwide equity markets, any new insight into the global economy is particularly valuable right now. The Economic Cycle Research Institute (ECRI) published a report last week with the rather innocuous title "A Shrinking Trade Pie." Despite the innocent sounding title, the contents of the report were particularly disturbing, especially in light of recent market events.
The report highlights decreasing growth in export volume and plummeting export prices, both of which coincide with past recessionary environments. Effectively, all "economies are trying to grab a larger share of that pie through competitive devaluation" and "export price deflation had become almost as intense as in the depths of the Global Financial Crisis (GFC)."
"Many economies are all effectively circling the drain. The last time export price deflation was this intense, not only was Chinese GDP growth even weaker than it is today, but also every G7 economy was in recession. It is ominous that the global trade pie is shrinking so rapidly today – with none of the G7 economies in recession – yet."
ECRI missed it's last recession call badly, and was very slow to acknowledge their mistake, but ECRI is a highly respected organization with unique insights into economic cycles and recessions. Their proprietary leading index is weakening, but they have not yet made a new recession call.
The Trader Edge recession model forecast (based on data through August first) will be posted tomorrow, but the data will not reflect recent economic and market events. As a result, I am particularly interested in seeing the recession model results through September first. The next few monthly recession forecasts will be very instructive.
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