Despite the war in Ukraine, the major economies of the US, China and the eurozone have recorded nominal economic growth of over 10% since the end of 2021 up to the first quarter of 2024. This suggests that there is no cause for concern. But is this really the case or are some things just being overlooked?

In fact, a closer look reveals that the upturn to date has largely been financed by rising government debt, particularly in China and the USA. And even if the picture in Europe and Germany itself initially appears more positive, a second look at the data reveals a high number of unreported cases that remain concealed in the official reports. This finding of only weak growth in the private sector everywhere is in line with the Leading Economic Indicators of the US research firm The Conference Board (TCB-LEI), which have been announcing an increasing probability of recession for all three regions since the end of 2021. But why is that?

Until three years ago, residential construction in particular was seen as a strong pillar of the Chinese economy, but its slump of 60% since then has left a visible mark. At the same time, consumer confidence fell to a record low from February 2022 and retail sales growth is at its lowest level since this data was first collected.

The USA is also struggling with bottlenecks: The construction of new commercial properties has fallen sharply here and housing starts have also dropped. Although Americans were able to accumulate some savings from government aid during the coronavirus pandemic, they have long since spent them again. Consumer confidence is currently correspondingly low. As a result, there are only two options left to finance the economy's consumption: The first would be current income. However, the current decline in wage growth and the measurably increasing weakness of the labor market offer little hope here. The second would be to take out loans. However, as the mortgage interest rate is now 7% for house buyers, while consumers are paying almost 22% interest on their credit cards, this also offers no way out.

While productivity and lending to private households are stagnating in Europe, we are enjoying a relevant advantage: higher consumer confidence. Contrary to the American example, savings were spent less after the pandemic and instead continued to build up. Accordingly, consumption here could support the economy in the future. However, although the improved financial situation reduces the risk of recession, caution is advised. Since 1970, US recessions have always led to price losses on the European stock market. So relying on geographical distance alone would be a big mistake.

It is therefore advisable not to overweight equities and to favor defensive sectors such as healthcare or consumer staples.

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