The global recession returns to the market's list of concerns, five major factors reveal economic risk trends

The Zhitong Finance App learned that currently, the risk of a global recession has returned to the list of market concerns, but the information conveyed by economic data and key financial indicators is not as clear as it might seem at first glance.

US President Donald Trump announced a 90-day suspension of most reciprocal tariffs in April, which allayed extreme investors' concerns, but is expected to damage business and consumer confidence and have a negative impact.

Guy Miller, chief market strategist at Zurich Insurance Group, said: “Even with some tariff agreements, the risk of recession has increased significantly. There is a 50% chance that the US will fall into recession; the situation is just so serious.”

Here are some of the highest-profile indicators that reveal the risk of a global recession:

1. A game between hard data and soft data

There is a disconnect between soft economy data such as sentiment indicators and hard data such as employment data, which makes it difficult to interpret the risk of a recession.

The latest US employment data shows that the economy is resilient, and the contraction of the US economy in the first quarter and economic expansion in the Eurozone can all be attributed to the pre-layout of companies before implementing equal tariffs.

Meanwhile, indicators of business and consumer confidence have deteriorated, which for some is a sign that economic growth is about to weaken.

Consumer confidence in the US fell to a nearly five-year low in April. Consumer spending is critical because it accounts for more than two-thirds of US economic activity. The Eurozone investor confidence index rebounded after falling sharply in April, but is still in a negative range.

Henry Cook, senior economist at Mitsubishi UFJ Financial Group, said: “We believe any economic contraction in the Eurozone will be short and relatively mild.”

Miller of the Zurich Insurance Group said he sees the number of jobless claims at the beginning of each week as the most timely indicator reflecting the current state of the US economy.

2. Expected transformation

The downturn in economic growth forecasts is unavoidable. Economists surveyed by Reuters pointed out that there is a high risk of a recession this year, and just three months ago, they predicted strong economic growth.

Barclays believes that the global economy will slow significantly, and there will also be a mild recession in the US and the Eurozone.

Economists say, however, that the recession is not a foregone conclusion. If the US can reach a trade agreement or implement tax cuts as soon as possible, the risk of a recession will be reduced. Furthermore, lower interest rates and fiscal incentives could cushion the eurozone economy.

Bank of America economist Ruben Segura-Cayula said, “Higher wage levels and a more dovish central bank policy than expected (at least in the Eurozone) will drive a recovery in consumer spending, which is the main factor in avoiding a deep recession.”

3. What's the demand?

The commodity market is signaling a sharp slowdown in economic growth.

Since this year, oil prices have fallen by about 16% and are currently around $60 per barrel. If oil prices continue to be low, 2025 will be the worst year for the crude oil market since the 2020 COVID-19 crisis.

Analysts said that the drop in oil prices certainly reflects expectations that OPEC will increase supply, but it is also in line with weakening demand due to the slowdown in global economic growth.

The price of copper, known as “Doctor Copper,” has attracted much attention because it can reflect the rise and fall of the economy. Copper prices have recovered from a nearly one-year low hit in early April, but are still below the March peak.

Citibank is bearish on the copper market over the next three to six months because physical consumption of copper and manufacturing activity are slowing down due to US tariffs, particularly the 145% tariff imposed on manufacturing center China.

4. Are bond market signals reliable?

The government bond market reflects concerns about the economic slowdown caused by US tariffs, but it does not show a sharp rise in the risk of recession because the market expects central banks to quickly take measures to cut interest rates.

China cut interest rates on Wednesday to mitigate the impact of the trade war. Since March, traders' expectations for ECB interest rate cuts have also increased. They expect the ECB to cut interest rates by a further 60 basis points by December.

Traders expect the Federal Reserve will cut interest rates by about 80 basis points by December and 115 basis points by mid-2026, but after tariffs were suspended, they have already lowered their previous more aggressive expectations. The Federal Reserve left interest rates unchanged on Wednesday and said the risk of rising inflation and unemployment had increased.

Henry Allen, macro strategist at Deutsche Bank, said: “In recent years, [federal funds futures] have been overestimating the dovish level of the Federal Reserve.”

Furthermore, although the reliability of the yield curve as an indicator of recession has recently been questioned, it is still worth watching. The difference in 10-year and 2-year US Treasury yields has been positive since last year. Although an inverted yield curve has historically been seen as a precursor to recession, the yield curve tends to return to normal as recession approaches.

Alan said, “In the recent economic cycle, the recession did not begin when the yield curve was inverted, but when the yield curve returned to normal, because short-term yields fell faster than long-term yields due to rapid interest rate cuts by the central bank.”

5. The stock market is too optimistic

The rebound in the stock market indicates that market fears of a recession have subsided. The German stock market is close to an all-time high, with US stocks and Japanese stocks each rising sharply by more than 15% from the low they hit last month.

However, the company's profit situation is worth paying attention to. Sweden's Electrolux lowered its performance expectations, and Volvo Cars, computer parts manufacturer Logitech (LOGN.US), and beverage giant Diageo (DEO.US) all abandoned their targets due to uncertainty. Despite announcing strong results, General Motors (GM.US) has withdrawn its earnings forecast for this year.

Miller of Zurich Insurance Group said, “The first quarter is probably the last earnings season not affected by tariffs. Starting from the second quarter, tariffs will be an influencing factor. “Given the uncertainty, I think the valuation should reflect at least part of this impact, but it hasn't yet been reflected.”