Skating on Thinner Ice: A Macroeconomic Outlook at the End of the Credit Cycle

Nouriel Roubini

Over a decade on from the global financial crisis (GFC), debates were still under way about its causes and consequences, and whether the lessons needed to prepare for the next one have been learned. Looking ahead, the more relevant question is what could actually trigger the next financial crisis and global recession, and when.

This chapter provides a macroeconomic outlook for the global economy in 2019–20 and describes the forces that may trigger the next downturn. Several of those forces are related to the post-GFC trends and disruptions in credit markets, such as the growth in leveraged lending in the US or the rise of fixed-income funds. In the first part of this chapter we consider 10 shocks and tail risks that could stall global growth and lead to a recession in 2020 or 2021.

With the large stock of debt built up in various pockets of the global economy and a rise in default rates becoming possible, we may be approaching the end of the credit cycle. In the second part of this chapter, we therefore consider how various segments of the credit markets could effect – and be affected by – the next recession.

THE JOURNEY TO THE NEXT RECESSION AND FINANCIAL CRISIS

Althou