Abacus | Global recession prophets have misread the US and Chinese economies

In the last few weeks the warnings have come thick and fast: the world economy is teetering on the edge of a new global recession, and sooner rather than later is going to tip over the edge into the abyss. Happily, the alarm bells are premature.

Other warnings come from less partial observers. And on the face of things, there is considerable evidence to support their views. They note that growth in the world’s three major economies – the United States, China and the euro zone – is slowing at the same time.

What’s more, they point out that by many measures debt levels are at record highs. In the US, for example, corporate debt is now equivalent to 47 per cent of gross domestic product. Every time in the past the ratio has exceeded 43 per cent, a recession has followed in a matter of months.

Now they fear history may be about to repeat. As growth slows, servicing all that debt will become impossible, and the US economy will collapse in a vicious round of default, deleveraging and deflation.

To many pessimists, China is in an even worse plight, with total debt now in excess of 250 per cent of GDP after years of credit-fuelled investment in projects of questionable value.