Trade tensions have caused stock markets to slide, raising concerns about a potential recession. Traders on prediction markets are increasingly betting on an economic downturn, with the odds of a recession in 2025 currently at 40%. Experts also see recessionary risks due to trade tensions, policy uncertainty, and sputtering consumer confidence. However, they caution that no single measure can guarantee the future, and a combination of metrics should be considered.
Consumer behavior, particularly consumer spending, is a key indicator of economic health. Consumer spending represents a significant portion of the country’s GDP, and changes in retail sales can provide early signals of an economic downturn. Policy uncertainty can impact consumer behavior and push the economy into a recession over time. Consumer confidence and business confidence are also important factors that affect spending and economic activity, with declines in these indices indicating potential trouble ahead.
Another important measure that economists pay attention to is the cost of borrowing, particularly the spread between short-term and long-term interest rates on government debt. A negative spread, known as an inversion, has historically signaled an impending recession. While there was a false alarm in 2022, the spread is currently back in positive territory after a prolonged inversion that ended in late 2024.
Overall, while there are warning signs of a potential recession, no single indicator can predict the future with certainty. It is important to monitor a combination of metrics to gauge the health of the economy and prepare for potential challenges ahead.
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