Why rising recession worries are roiling global markets? MC Explains

Recession worries are roiling global markets.

Stock markets globally are witnessing a sharp selloff, with growing concerns that economic growth could slow.

The tech-heavy Nasdaq index slipped into correction territory last week, falling over 10 percent from its recent high. The broader S&P 500 is also nearing a similar decline.

The sentiment has shifted drastically from a month ago, when optimism was running high. Investors were hopeful that tax cuts and deregulation would boost business activity. However, aggressive tariff measures by US President Donald Trump have unsettled global trade.

Tariffs and Recession Worries

US President Donald Trump’s decision to hike import tariffs has heightened concerns. On Tuesday, the US increased tariffs on steel and aluminium imports from Canada to 50 percent, up from 25 per cent, in response to Ontario’s duties on electricity exports. The move has added to trade tensions, which are seen as a major risk to global economic stability.

Meanwhile, Goldman Sachs estimates that while growth will slow, the probability of a US recession remains at around 20 percent. However, growing uncertainty around Trump’s economic policies has made investors cautious.

"The longer the tariffs stay in place, the higher the risk of a recession," said Luke Tilley, chief economist at M&T Bank/Wilmington Trust, as quoted by AP.

Indicators Flash Warning Signs

According to a AP report, a real-time economic tracker maintained by the Federal Reserve’s Atlanta branch signalled a sharp slowdown, projecting that the US economy could shrink at an annualised rate of 2.4 percent in the first quarter of 2025.

Market Reaction

Investor sentiment was further rattled after Trump declined to rule out the possibility of a recession. When asked in a Fox Business News interview whether the US could slip into recession this year, Trump responded, "I hate to predict things like that. There is a period of transition because what we’re doing is very big… It takes a little time."

Adding to market jitters, Elon Musk’s Department of Government Efficiency (DOGE) is reportedly planning to cut tens of thousands of federal jobs and reduce government spending, moves that could weigh on economic growth.

What's the situation in India? 

The stock markets in India remain under selling pressure with February marking the fifth consecutive month of losses for the domestic markets, a streak not seen since 1996.

The benchmark BSE Sensex has plunged 12,207.66 points or 14.19 percent, from its all-time high of 85,978.25 hit on September 27, 2024. The Nifty 50 has also fallen sharply, losing 3,900 points or 14.84 percent, from its record peak of 26,277.35. The overall market capitalisation has eroded significantly from the record Rs 4,77,93,022.68 crore seen in September last year.

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