SThe Tock markets have been dreading a series of warning signals in major economies. At least this week there was a reversal of the US bond yield curve and news of a decline in the German economy. Here is a guide to trouble spots in the global economy that investors are dealing with.

The USA

The US is at the center of global stock market sales. Investors overlook that the International Monetary Fund expects the G7 economies to show the fastest growth of 2.6% this year, and this has not done a lower unemployment since Neil Armstrong hit the moon in 1969. Instead, Wall Street fears that higher US Federal Reserve rates, the waning effects of tax cuts and the trade war with China are driving the economy into recession.

US GDP

The United Kingdom

The inclusion of the UK in the list of problem countries can be limited to one word: Brexit. The economy contracted by 0.2% in the second quarter as inventories accumulated ahead of the original EU departure date of 29 March. Strong employment growth and rising real wages may be enough to stimulate growth in the third quarter, but a disinterested Brext on 31 October could have a significant impact on Britain, the EU and the rest of the world.

British GDP

Germany

Europe's most prolific exporter has noted that demand for machine tools, trucks and cars has declined sharply over the past year, especially from China. The slump in exports led to GDP declining by 0.1% in the second quarter. Business confidence dropped so dramatically that it reached its lowest level since the 2008 financial crash last month. Even so, after a decade of budget surpluses, the government has a lot of money and companies are not heavily in debt. So you have the power to survive storms.

German GDP

China

Officially, China is growing at more than 6% a year, but the reality is worse than the headlines suggest. The country's president, Xi Jinping, is trying to change China to slower but higher growth. This process is hampered by the fragility of Chinese companies and banks for tighter credit conditions and the impact of Donald Trump's tariffs, which lead to a weakening of factory production and a slowdown in exports. China announced this week that industrial output reached a 17-year low in July.





An electronic board displays the stock index and prices at a securities broker in Beijing.



An electronic board displays the stock index and prices at a securities broker in Beijing. Photo: Roman Pilipey / EPA

Brazil

The Brazilian domestic economy looks quite robust, but this has not prevented stocks and currency from coming under strong pressure. The largest economy in Latin America is hampered by problems in other parts of the world: its close neighbor Argentina is in financial collapse, slower growth in China means a decline in demand for Brazil's abundant natural resources, and there is concern that exports to the country are also in decline US will be stifled by a slowdown in the world's largest economy.

What is the yield curve?

This is the line shown in a graph that shows the yield on government bonds until their due date.

Government bonds – called gilts in the UK, treasuries in the US and federal bonds in Germany – are issued over a fixed period of time, typically three months, two years, ten years and thirty years to finance government spending.

The return is the return investors receive. Maturity is when the state repays the debt at maturity. As more investors buy government bonds, prices rise and yields fall.

Companies can also issue bonds.

What happens when the yield curve reverses?

In this case, the yield on short-term bonds is higher than on long-term bonds. This means that traders accept a lower interest rate to hold longer-dated bonds than the shorter-term alternative.

It is relatively rare for investors to generally generate higher returns in the long run, as this is considered riskier than short-term lending. They also expect compensation for the effects of inflation, which will affect investment over time.

What does that mean?

An inverted yield curve is a classic signal of a looming recession – in the US, the curve has been inverted in the last 50 years before any recession. It has falsely signaled a recession only at the time of the Russian financial crisis of 1998.

For other countries the signal is less clear. Some have experienced long periods of inverted yield curves without subsequent recession, particularly Britain in the 1990s.

Why is it happening right now?

The yield curve for US Treasury bills has reversed for the first time since 2007, just before the onset of the global financial crisis. This indicates that investors are seriously worried about an economic downturn that would keep inflation low. They are concerned about the impact of the continuing US-China trade war and Brexit on the already weak global economy.

Is a recession inevitable?

No, but it is very likely. And a recession-driven, inverted yield curve can become a self-fulfilling prophecy that drives down trust and drives companies to cut their investment.

How fast does the recession tend to follow the inversion of the yield curve?

Earlier downturns show that returns have typically reversed an average of 18 months before the start of a recession. Julia Kollewe

Argentina

The return of Cristina Fernández de Kirchner, the controversial former left-wing president of Argentina, to political significance has put investors on the run. In a pre-election poll, she and her colleague, populist candidate Alberto Fernández, were on the right path to beat incumbent President Mauricio Macri, struggling to put the country's finances in order. The government has recently borrowed heavily and wasted most of its money on vanity projects and subsidies to important constituencies. Fernández and Kirchner are not questioned by the investors. There is already a sales signal for the country based on the assumption that the country will be in arrears in the event of a takeover.

Italy

A recovery in 2017 turned out to be brief when Rome argued with Brussels for its state budget and corporate confidence. The threats of leaving the euro and possibly the European Union as a whole may have disappeared from the rhetoric of Matteo Salvini, leader of the League Party, but corporate confidence remains. A banking sector burdened with bad debts and a corporate sector that is competing and losing with Chinese competitors are likely to cause a period of decline.

Singapore

Singapore's economy is expected to fall into recession in the third quarter of 2019. It is due to the US-China trade war that continues to shake the Southeast Asian nation after confirming second-quarter growth this week. 3.3%. The city-state of 5.5 million people is a financial center that stores hundreds of billions of dollars in foreign savings. It was therefore a shock to investors that the decline in sales of manufactured goods to China could easily come to a standstill. A decline in Chinese tourists also hit the wholesale and retail trade.