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Stable oil prices decrease likelihood of global recession

Global recession

The global economy is no longer in danger of falling into another recession due to a rally in global stock markets and commodity prices.

That is the main finding of a new report released earlier this month by researchers at Oxford Economics, and it is likely to ease concerns expressed by economists and other expert analysts about the health of the global economy.

Oxford Economics' recession risk model recorded a score of 3.3 out of five - down from four at the turning of the year.
Fears surrounding the state of the world economy reached their height back in January when oil prices were heading for just $20 a barrel, due to a freefall in prices.

But a score of 3.3 is, according to Oxford Economics' Adam Slater, “no longer at levels associated in the past with recession periods".

However, it is worth remembering that the number is unlikely to correlate to a concrete prediction of whether or not a recession is coming, instead showing how the world is performing on five different indicators that have, in the past, proved relatively accurate in helping to predict previous recessions.

The five factors examined by Oxford Economics in its calculations include global stock prices, real non-fuel commodity prices, along with US high yield spreads and corporate credit conditions and G7 industrial output.

But Slater said: “Recession risk has not subsided entirely. The recession risk indicator remains at levels similar to those in 2011-12, when world GDP growth slowed sharply, to as low as 1.5 per cent.”

Nevertheless, there is likely to be plenty of optimism surrounding the findings consider that the score surpassed four during the 2001 contraction, before hitting five in the final quarter of 2008.

While the risk of another global recession looking less likely, the figures have indicated a sharp slowdown in growth, adding that it could fall below the 2.3 per cent initially predicted for the year.

Should growth be excessively hampered it is likely to be an added worry for economists. When recession risks were similarly high in 2012, the global economy saw just 1.5 per cent of growth.

Slater cites that even the ongoing rally in the financial markets is unlikely to have been built "concrete improvements" in the global economy.

He added that investors should be weary of the risks and prepare accordingly for poor growth over the course of the year.

“High yield spreads have narrowed but remain wide and concerns persist about tightening credit standards,” he said. “G7 industrial production has meanwhile moved into the danger zone, being likely to enter technical recession in Q1 2016.”