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Merrill: “We are worried, Recession risks are rising”

A few brief excerpts from a Merrill Lynch research note: Recession risks are rising

Our baseline is that this is simply the third mini-cycle in this expansion and that the economy will return to above-trend growth at the end of next year after a soft patch. … However, we are worried that the economy will not be as lucky this time around for a few reasons: 1) later stages in the cycle – the economy has returned to full capacity and we no longer have “easy growth”; 2) monetary policy tools are limited; 3) there is a persistent external shock hitting the global economy – the trade war – creating high uncertainty across the global economy.

As we have consistently noted, expansions do not die of old age, but they can die from a policy mistake. And we are ripe for a policy mistake today.

We now have a number of early indicators starting to signal heightened risk of recession. Our official model has the probability of a recession over the next 12 months only pegged at about 20%, but our subjective call based on the slew of data and events leads us to believe it is closer to a 1-in-3 chance.

CR Note: I’m not currently on recession watch, but I agree the risks have increased.

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