Recession risks are abating, top economist says

A top Wall Street economist is lowering his recession forecast.

But Barclays’ Michael Gapen warns it’s too early to give the U.S. economy the all-clear.

“We do need to get over some of these hurdles that are a problem for business-sector spending of which is both U.S.-China trade concerns as well as things like Brexit and other geopolitical risks,” the firm’s head of U.S. economic research said Friday on CNBC’s “Trading Nation.”

Gapen believes the odds of a contraction are now 20% over the next 12 months — down from his October forecast of 25% to 30%.

“The deceleration in manufacturing seems to be abating. That’s the good news,” said Gapen. “The bad news in that report is the services side of the economy seems a little weaker than expected.”

In any given year, Gapen estimates there’s a 10% chance of a recession. If Washington and Beijing can agree to a trade deal, he suggests 2020 could see a more normalized risk because it would give U.S. businesses more confidence to start spending again.

“We need to get some sort of ‘phase one’ agreement done even if it’s narrow,” he added.

On Friday, U.S. Chamber of Commerce head of international affairs Myron Brilliant signaled the highly anticipated “phase one” U.S.-China trade deal may not get signed before additional tariffs begin on Dec. 15. It’s supposed to tackle intellectual property, financial services concerns and agricultural products.

“What the market and economy needs to know is we’ve hit peak tariffs and they’re likely to come lower,” said Gapen. “So momentum on that front has stalled out a bit.”

However, Gapen doubts the potential delay means trade talks are breaking down.

“I still think on balance the comments around U.S. trade discussions are positive,” Gapen said.


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