Global Economic Risk Outlook. First quarter 2020

Summary

This report presents an analysis of those global shocks, mostly of low probability, which may have a severe impact on the economy. Short-term risks have diminished on the back of easing trade tensions and interest rate cuts, but concerns on structural issues remain high (de-globalization and climate change).

Key points

• Key points:
• ‘Recession risk’ has fallen in the US and the Eurozone but continues to be relevant in both cases amidst growing financial vulnerabilities (‘irrational exuberance’ and a new wave of debt), high policy uncertainty and increasing geopolitical tensions.
• ‘De-globalization risk’ steaming from broader rivalry among big economies (decoupling in key issues as technology or financial flows) surges as one the most significant concerns in the medium term.
• An inevitable deleveraging process in China remains as a key source of risk (ongoing build-up of financial vulnerabilities in a context of heavy reliance on short-term stimulus).
• Concerns on debt sustainability in the Eurozone and a protracted stagnation in DM remain on the table.
• In the longer-term, costs associated to the transition towards a more environmentally sustainable economy (i.e. reassessment in asset valuation according to climate risk exposure) come to the fore.

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