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Why a 2020 recession would be mild but long

Should the global economy fall into recession in 2020, we doubt that the growth slump would be as severe as that seen in the global financial crisis (GFC). Rather, we think it would resemble the dot-com bust at the turn of the century.
There’s no shortage of potential recession triggers currently – trade tensions, political uncertainty, a correction in US equity prices to name a few. But we think the global economy has fewer underlying vulnerabilities compared to the lead up to the GFC: households are less leveraged and asset prices in general are less overvalued.
Although the scale of the recession in our scenario is much smaller than the GFC, we expect a subsequent rebound would be subdued. The main constraint is limited policy space. In advanced economies, only the Fed would have room to cut interest rates significantly, and we doubt the scope for unconventional policies exists elsewhere to boost demand.
Instead, we think fiscal stimulus would take priority for advanced economies. But the delayed nature of infrastructure projects means the boost is slow to trickle into the economy. More generally, aggressive and broad-based fiscal loosening is only likely when a recession is all but inevitable.

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