While the US economy is now in its longest expansion on record, clouds are forming on the horizon. Trade tensions between the world’s largest economic powers, heightened geopolitical risks and growing policy uncertainty threaten the health of the US economy. In order to prepare for this, Oxford Economics has published the US Recession Scenario Service that analyzes the potential causes of an economic downturn as well as the impact on industries and regions across the nation.
Trade: The US imposes a 10% tariff on all Chinese imports not currently targeted and a 25% tariff on EU automotive imports, prompting both economies to retaliate.
Confidence: Trade tensions and a recession bias prompt consumers and firms to pull back on spending, hitting both the labor market and equity prices.
Profits: The fall in demand, tighter financial conditions and a decline in productivity growth squeeze corporate margins and dent stock valuations, ultimately leading to defaults in high-yield bonds.