Global markets tumble as tariff tensions spark recession fears
America, Asia, Europe - almost all major indices are in the red. Wall Street has had its worst quarter in 23 years and faces immense uncertainty. Investors fear the worst, namely a recession.
American President Donald Trump caused massive upheaval in global markets with his decision to raise tariffs to the highest level in 100 years. Just as investors were starting to calm down, a retaliatory blow came from China, which imposed 34 percent tariffs on all American goods. As the trade war began to unfold, recession loomed in investors' eyes. What might indicate this?
Banks give the first signal
The banking index in Europe recorded a drop of over 9 percent on Friday afternoon. Shares of giants such as Deutsche Bank, Intesa Sanpaolo, Banco Santander, and UniCredit fell by 9 to 11 percent in the stock markets. Swiss UBS, Europe's largest bank, lost 8 percent in stock value. These banks face a double challenge: high exposure to the American market and weakened prospects for the European economy.
Economists warn that new tariffs may lead to increased costs for American consumers, which in turn could trigger inflation and heighten the risk of a recession. Mohamed El-Erian, chief economic advisor at Allianz, emphasizes that although a recession is not inevitable, the risk of its occurrence 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 - the second warning sign
The risk of a recession in the U.S. and globally increased to 60 percent from the previous 40 percent after Trump's tariff implementation, announced American bank JP Morgan advisors on Friday. "We are concerned about the increasingly destructive trade policy of the USA," said Wolfram Axthelm, adding that U.S. trade policy has become less business-friendly than expected.
The effects of the tariff increases compounded by retaliation could lead to a decline in business sentiment in the U.S. and disruptions in the supply chain. Other Wall Street brokerages, including Barclays and Deutsche Bank, also warn that the American economy is more susceptible to a recession this year due to tariffs. These analyses seem to be confirmed by oil prices, which dropped by more than 8 percent on Friday afternoon.
