Is the world heading towards another recession?

GOING by economic history and theory, it would not be unusual for the world to be heading towards another recession. Economic downturns occur every seven to 10 years. At this time, the world has been in the recovery mode for seven years; the Great Recession of 2008-09 ended formally in 2009. If a recession were to happen its impact will be different from the one that hit in the late 2000s. Then China was able to exercise its pull on the rest of the world. This time as the Chinese economy weakens, the United States was supposed to be the engine of global growth.

There is a debate among economists and financial analysts whether economic indices point towards another slowdown in the United States. We should recognise that economists need to gaze into the future in order to inform the making of public policy. However, they are seldom totally right and often seriously wrong. Forecasters in places such as the International Monetary Fund and the World Bank are always adjusting their projections up and down. Both institutions have lowered their sights for the year 2016 for the world economy. Economists' problems with predictions are related to their discipline. The ground on which they walk is constantly shifting.

Those who are given to pessimism look at some of the indices that were in the past associated with recessions. Industrial production in the United States, for instance, fell in 10 months in 2015 - a figure that has since 1919 always been associated with recession. A well-regarded survey of purchasing power in manufacturing which over the long run has shown a strong correlation with growth in the economy has signalled contractions for the last several months. However indices such as these focus on the state of the manufacturing sector but that sector is now only a small part of the US economy. In 2015, manufacturing accounted for only 16 per cent of the US gross domestic product while the share of the service sector had climbed to 80 per cent. Surveys for the non-manufacturing activity indicate that they are in much better health. We should note that the world's four largest companies - Google, Apple, Microsoft and Facebook - are in the service sector. The book value of General Electric, the world's largest industrial company, is one half of that of Google.