Are you ready for the upcoming global recession?

Yesterday, the US Treasury (10-year) bond yield fell below the two-year low of 2%. Although the Fed kept the interest rate unchanged on the same day, the Chairman’s tone turned to be ready to cut interest rate and even implement QE again. Two days ago, the President of the European Central Bank (ECB), Mr. Draghi, said that “ECB policymakers would consider in the coming weeks how to adapt their policy tools ‘commensurate to the severity of the risk’ to the economic outlook.” [1]

“China’s central bank said on Monday the second phase of a cut in the reserve requirement ratio (RRR) freed about 100 billion yuan ($14.44 billion) worth of long term funds. In open market operations, the People’s Bank of China (PBOC) also injected 150 billion yuan via 14-day reverse repos to ‘keep liquidity level stable at end-June.’” [2]. Similarly, Australia’s and New Zealand’s Central Banks have also cut their interest rates. All these signals show that many countries are aware of the coming recession!

Coupled with the US-China trade war, Hong Kong being survived in the gap between the two countries, has shown initial signs of economic recession. For example, the number of Mergers and Acquisitions in the first quarter of this year is reported to have fallen sharply by 25%. [3] Furthermore, the quantum indices of import and export have been falling for six consecutive months. The annual change in retail sales has also been negative for three consecutive months. The number of company bankruptcies has exceeded 20,000 in a single month. The 3-month Hong Kong Interbank Offer Rate (HIBOR-3m) has recently upsurged to break the 2.5% threshold (Figure 1), which may reflect the acceleration of capital outflows.

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Figure 1 Hong Kong 3-month Interbank Offer Rate (HIBOR-3m). Source: Trading Economics

In fact, since the United States triggered the normalization of interest rates in 2015, it began to unwind the balance sheet and raise interest rates. Hong Kong is inevitably affected due to the linked exchange rate regime. Thus I have made the first recession warning since 2015 and 2016 [4][5]. In this 4-year period, the Fed had raised interest rates nine times and unwind $535 billion from the balance sheet (Figure 2).

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Figure 2 The Fed unwinded the Balance Sheet since 2015. Source:

Since 2018, the anxiety of economic recession has been switched from academic discussion to direct change of investment strategy. The yield spread between short and long-term US Treasury bonds has begun to narrow [6] and officially became “inverted” on May 23 this year [7] (Figure 3).

Figure 3 The yield spread of the US short and long-term debt are inverted. Source:

I have issued again a warning on October 1, 2018 to urge preparing for the possible adverse changes of the Hong Kong economy. It is repeated as follows:

“Investment expert Tao Dong in this issue of the Hong Kong Economic Journal Monthly magazine urges everyone to ‘take a closer look at their cash flow, if the leverage is high, it is necessary to deleverage, the debt ratio cannot be too high, securities investment cannot be too aggressive.’ I add one more: Everyone should reduce consumption and save up against rainy days!”[8]

Less than a year, the world’s major economies have begun to turn around and started cutting interest rates or QE. The recession signal is becoming more and more obvious. Are you ready?

[a Chinese Version is available at]

[1] WSJ (2019) ECB Signals Possible Rate Cut Prompting Trump Tweets, Jun 18.

[2] Reuters (2019) China central bank injects funds, second phase of RRR cut takes effect, June 17.

[3] SCMP (2019) As talk of global recession emerges amid US-China trade war, deal flows and sentiment take a hit, June 20.

[4] 姚松炎(2015)未來城市,高瞻遠矚,端傳媒,8月8日。

[5] 姚松炎(2016)從灰色到綠色凱恩斯經濟政策,明報,1月31日。

[6] 姚松炎(2018)長短期美債息差趨平,方格子,5月20日。

[7] Yiu, C.Y. (2019) Yield Curve is Inverted Today, Medium, March 23.

[8] 姚松炎(2018)如何準備應對香港經濟可能出現的不利變化,方格子,10月1日。

ecyY is the Founder of Real Estate Development and Building Research & Information Centre REDBRIC

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