World economy still slowing

If we add the PMIs for the world's largest economies together, even though it is not exactly the same as the total for all economies, it's not a bad proxy.  The chart shows the GDP-weighted average of various monthly surveys of executives—for the USA, the extreme-adjusted average of the ISM and PMI surveys; for China, the average of the official and Caixin Bank surveys; for Europe, the IHS Markit survey, and for Japan, the Nikkei survey.

We're not back at the 2012 Euro crisis lows yet, but we are heading in that direction.  Even if China has bottomed, I am convinced that the PBC (People's Bank of China) and the Chinese government will be very cautious about over-stimulating, because the last few times they did, they caused a debt explosion.  They'd like a steady sustained growth rate from year to year, rather than wild swings.

Meanwhile, Europe is constrained by the fiscal limits imposed by the EU on member states, and by the simple fact that interest rates in the Euro area are already at zero. The German 10- year bond yield is actually negative.

The US is coming off the Trump fiscal stimulus sugar high, and the economy is responding to the tightening of monetary policy over the last 2 years.  If the Fed were to start slashing the Fed Funds rate now (it won't) the US economy wouldn't respond for 12 to 18 months.  Economies are like tankers—if you turn off their engines, they'll still keep going for another 20 miles.  And they take as long to speed up again.

Add the risks of an oil crisis caused by Trump's trade embargoes against Iraq and Venezuela, and the rebellion in Libya, and you have a nice recipe for recession.  If we avoid an oil crisis, and a leveraged-debt blow up in the USA, we'll get a long, but shallow, recession.  If not .....