"The only thing keeping the US out of recession is the US consumer", reckons Albert Edwards, the famously bearish Societe Generale strategist. US shoppers are "like a woodworm-ridden crutch creaking under the strain of holding up a deadweight economy". That crutch might give way as consumers are shocked by a rapid rise in inflation as the weak oil price starts to drop out of the year-on-year calculations.
The only thing that could cushion the blow, admits Edwards, is rising wages, which could "offset the impact of slowing employment growth, as the pain in the corporate sector ripples over into all categories of their spending". But that's a double-edged sword.
If wages start rising strongly, then the Federal Reserve is more likely to tighten monetary policy from its current hyper-accommodative stance. The political atmosphere may not help matters despite its recent decision to keep rates on hold, the Fed will be subjected to "fierce" pressure over the next few months as the inflation data perks up. As a result, "this recovery, the fourth-longest in history, is surely nearing its end".
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The US isn't alone in its woes Edwards isn't any more positive about the rest of the world. The eurozone is in deep trouble, with "the region's second- and third-largest economies (France and Italy) spluttering to a dead halt". Germany's economy is also looking shaky, with industrial production declining.
However, the biggest worry of all for the global economy is China, says Edwards. The Chinese credit bubble is like "the Sword of Damocles hanging over us all". When it eventually falls, the ensuing collapse in global demand will make the Great Recession of 2008-9 look like a "tea party".
