Lombardi: Stock Market Commentary & Forecasts, Financial & Economic Analysis Since 1986

Chances of Global Recession in 2013 Very High Now

Wednesday, March 13th, 2013
By for Profit Confidential

In the last three months of 2012, the United Kingdom (U.K.) experienced a contraction in its gross domestic product (GDP). Another contraction in the current quarter will put the U.K. into another recession. (Source: Reuters, March 12, 2013.) So far this quarter, the economic numbers don’t look good for the U.K., as manufacturing fell 1.5% in January.

Of course, many eurozone members are deep in recession. Jens Weidmann, President of Germany’s central bank, the Bundesbank, said this week, “The crisis is not over despite the recent calm on the financial markets.” (Source: Kuehnen, E. and Carrel, P., “Euro woes not over, German central bank says, as piles up crisis fund,” Reuters, March 12, 2013.) First it was the debt-infested nations that caused economic chaos; now stronger nations, like France, are struggling to keep up as they face high unemployment rates.

The situation elsewhere in the global economy is deteriorating quickly, and it’s not just the U.S., U.K., eurozone, Japanese, and Chinese economies that are suffering. According to JPMorgan Global Manufacturing and Services Purchasing Managers’ Index (PMI), the global economy’s output dropped to its lowest level in four months in February 2013, reaching 53.0, compared to 53.2 in January. (Source: Markit, March 5, 2013.) Any reading below 50 marks contraction.

Demand drives economic growth. If there is bleak demand in the global economy, a recession becomes a very likely scenario. The major economic hubs in the global economy are suffering through an extensive recession or are seeing their economies slow. It’s not very convincing, to me, to believe there is any economic growth in the global economy.

If the global economy does fall back into recession, and there is a big possibility it could, it will have a major impact on the U.S. economy, especially on American-based multinational corporations. When countries in the global economy see a decrease in exports and imports, the companies that sell and manufacture goods come under scrutiny, as their profits decline.

Major U.S. companies, like those on the S&P 500, are already displaying negative profit growth—which will lead to more uncertainty. And I doubt excessive money printing will help these companies this time around.

What He Said:

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“When I look around today, I see falling stock prices…I see falling house prices…and prices for retail goods stores declining. The media has it all wrong blaming (worrying about) inflation. In my opinion, the single biggest threat to the U.S. economy and to the Fed in 2008 is deflation. You can bet the Fed will expand the money supply and drop interest rates aggressively as deflation starts to rear its ugly head.” Michael Lombardi in Profit Confidential, December 17, 2007. Michael was one of the first to warn of deflation. By late 2008, world economies were embedded in their worst state of deflation since the Great Depression.

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Michael Lombardi - Economist, Financial AdvisorMichael bought his first stock when he was 17 years old. He quickly saw $2,000 of savings from summer jobs turn into $1,000. Determined not to lose money again on a stock, Michael started researching the market intensely, reading every book he could find on the topic and taking every course he could afford. It didn’t take long for Michael to start making money with stocks, and that led Michael to launch a newsletter on the stock market. Some of the stock recommendations in Michael's various financial newsletters have posted gains in excess of 500%! Michael has authored and published over one thousand articles on investment and money management. Michael became an active investor in real estate, art, precious metals and various businesses. Readers of the daily Profit Confidential e-letter are offered the benefit of the expertise Michael has gained in these sectors. Michael believes in successful stock picking as an important wealth accumulation tool. Married with two children, Michael received his Chartered Financial Planner designation from the Financial Planners Standards Council of Canada and his MBA from the Graduate Business School, Heriot-Watt University, Edinburgh, Scotland. Follow Michael and the latest from Profit Confidential on Twitter or Add Michael Lombardi to your Google+ circles