Forget Brexit. Here are the signs that we’re on the brink of the next global economic recession

A third of fund managers cited a global recession as the issue most likely to keep them up at night, as a cocktail of tensions threaten to turn the world into a giant pressure cooker

Amid headlines of domestic political mayhem, Brexit shambles and Donald Trump, you’d be forgiven for missing news that Germany, still Europe’s largest economy by far, is a whisker away from stumbling into recession.

The economy grew by just 1.5 per cent last year, representing its weakest rate of expansion in half a decade, largely due to some of its biggest exporters – car companies, manufacturers and industrial conglomerates – being battered by trade wars. Growth stagnated in the fourth quarter after a contraction in the third, prompting the government in mid-January to slash its expansion forecast for 2019 dramatically, to a paltry 1 per cent from 1.8 per cent. Last week – adding insult to injury – figures showed that confidence in the German economy had fallen to its lowest level in four years. Nicht gut.

We should care. Germany is the UK’s most important trading partner within the EU and, crucially, it’s a bellwether for the health of the world economy. When Germany sneezes, the world doesn’t necessarily catch a cold, but whatever Germany suffers from is pretty likely to wipe the rest of us out too.

This week, a questionnaire of some of the world’s most influential investors – individuals who analyse markets in forensic detail all day, every day – painted an austere picture. The monthly survey, conducted by Bank of America Merrill Lynch, showed that of all the risks to choose from – populism, Brexit, an emerging markets crisis and yes, even terrorism – the money managers deemed a full-blown global recession to be the most immediate.

A third of the fund managers cited a global recession as the issue most likely to keep them up at night. And that proportion – a third – was also the highest proportion of participants to name a single issue since summer 2017. As well as the dismal figures out of Germany, respondents also said that the Italian economy and uninspiring Chinese and US macroeconomic data were reasons for their gloomy prognoses.

The so-called buy-side is not alone. In January, a think tank called The Conference Board questioned 1,400 global business leaders about their most pressing fears for this year and – you guessed it – a global recession came out on top. It was the predominant worry for executives in Latin America, China and Japan, and ranked third and sixth for European and American CEOs respectively. In yet another survey, led by the prestigious Duke University back in December, close to a half out of hundreds of chief financial officers – who are often much more in tune with state of markets, economies and risks than their CEOs – said that they expected the US to enter a recession as early as the end of 2019. “The end is near for the near decade-long burst of global economic growth,” said John Graham, a finance professor at Duke.

The US has been the world’s largest economy for at least a century. It’s the most important trading partner for dozens of countries, including the UK and China. It drives trends and dictates the ebb and flow of consumption and sentiment. When the US sneezes, the world really does catch a cold.

So yes, we should be worried about the economic impact of Brexit, but not only because of what that might mean for those of us idling away on this lonely island, stockpiling Marmite. We should also worry about how it might feed into a cocktail of tensions that are threatening to turn the world into a giant pressure cooker. Equity markets generally peak a little under a year before a recession occurs. The US benchmark Dow Jones Industrial Average hit its 15th record closing high of 2018 this past October (it chalked up over 70 record closing highs in 2017), and then swiftly endured its worst December since 1931. A healthy job market is also sometimes cited as an indicator of an imminent recession, the logic being that a low employment rate signals that we’ve come to the end of the cycle. The UK unemployment rate is currently lingering at a record low, mirroring closely what’s going on across the pond.

So move over Brexit. Germany has already hinted that 2019 will turn out to be a rough ride. Take that warning seriously. The global bull market has lasted for over a decade but the bears are scratching at the door. And bless you if you think Brexit is the only thing on their minds.