Does the non-U.S. outlook matter to you and your company? If so, it might be time to reassess. We've written recently about the growing likelihood of a recession and sharing our best resources for what companies can do about it. Here we want to take a moment to underscore how serious the non-U.S. macroeconomic threats are--especially in Europe.
Europe faces the sharpest risk, with two main causes. First and foremost, the likely winter fuel price spike poses a major threat, most particularly to the Russian-fuel reliant Germany. The U.S.'s moves to raise interest rates are another factor, as the strengthening dollar exacerbates the inflation issues faced outside the U.S. Central banks in Europe face an extremely difficult situation where the mandates require them to fight inflation, but fighting inflation in the short-term might harm the economy and create long-term disinflation risk.
Importantly, economic problems are contagious. For example, France will suffer if and when its #1 trade partner Germany falls into recession. Given pre-existing weakness throughout the world, with construction and COVID-19 issues in China and inflation and uncertainty in the U.S, we are discouragingly vulnerable to a global recession.
Such a downturn is by no means sure. Companies are already pricing in recession likelihood. If good luck strikes, the boost from exceeded expectations could help keep the world growing and confine any downturns to small decreases in few countries. But now is a time to be prepared. Recession risk is real. Take steps to diversify, develop more reliable revenue streams, and ensure strong financial footing.