Markets in turmoil: Tariffs ignite global recession fears
Nearly all significant indices in America, Asia, and Europe are showing declines. Wall Street has experienced its worst quarter in 23 years and faces considerable uncertainty. Investors fear the worst: a possible recession.
U.S. President Donald Trump caused significant upheaval in the global markets with his decision to raise tariffs to their highest level in 100 years. As investors began to calm down momentarily, China retaliated by imposing 34% tariffs on all American goods. As the trade war escalated, the prospect of a recession started to haunt investors. What might indicate this?
Banks give the first signal
The banking index in Europe recorded a decline of over 9% on Friday afternoon. Shares of giants like Deutsche Bank, Intesa Sanpaolo, Banco Santander, and UniCredit fell between 9% and 11% on the exchanges. Swiss UBS, Europe's largest bank, saw its shares drop by 8%. These banks face a dual challenge: heavy exposure to the American market and weakened prospects for the European economy.
Economists warn that the new tariffs could lead to higher costs for American consumers, which could trigger inflation and increase the risk of a recession. Mohamed El-Erian, chief economic advisor at Allianz, emphasizes that although a recession is not inevitable, its risk is currently very high.
"People are going to realize that if the U.S. slows down, the rest of the world will slow down more than the U.S. So I don’t believe we’re going to continue to see dollar weakness," said El-Erian.
Commodities - second warning signal
JP Morgan advisors reported on Friday that the likelihood of a recession in the United States and globally has increased to 60%, up from the previous estimate of 40%, following the introduction of tariffs by the Trump administration. According to the bank's analysts, the current U.S. policy poses the most significant threat to the global economic outlook. American trade measures have turned out to be more adverse to business interests than anticipated.
The effects of the tariff hike, compounded by retaliation, may lead to a decline in business sentiment in the U.S. and a disruption in supply chains. Other brokerages on Wall Street, including Barclays and Deutsche Bank, also warn that the U.S. economy is more exposed to a recession this year due to tariffs. These analyses seem to be confirmed by oil prices, which fell by over 8% on Friday afternoon.
