A global recession remains unlikely but could emerge in the coming years if economic growth does not recover and businesses lay off employees to reduce costs, says the SCB Chief Investment Office (CIO).
In addition to the Sino-US trade dispute and Brexit debacle, there have been growing concerns over a possible global economic recession in 2020, based on the belief an economic crisis happens cyclically every 10 years or so and some leading economists and fund managers are wary, said Sornchai Suneta, executive vice-president at Siam Commercial Bank.
Although global stock markets are expected to experience recurring volatility next year, chances of an economic recession are slim, said Mr Sornchai.
Economic indicators of major economies still suggest conditions remain sound overall despite a pocket of risks.
For instance, unemployment rates in the US and China stand at low levels of 3.5% and 3.6%, respectively, while non-performing loans in these countries are also low at 1.4% for the US and 1.8% for China.
Unemployment rates in some euro-zone countries, namely Greece, Spain and Italy, are at a staggering level of 10%. Cyprus also has a high level of bad debt at 20%, followed by Greece and Portugal both at 10%.
An inverted yield curve at a spread of 0.17% between short-term and long-term US Treasury yields also signals an economic recession could be on the horizon.
"Though there is low risk of a global economic recession in 2020, some risk remains as previous recessions were usually derived from an economic bubble or financial crisis," he said.
Based on an analysis of previous recessions, speculation and fear were the root cause of such downturns, said SCB CIO.
Speculation occurs when people embark on a buying spree of assets in the hope that asset prices will continue increasing, without regards to their actual value, said Mr Sornchai.
This leads to a bubble and later an economic crisis when the bubble bursts, he said.
The dotcom bubble in 2000 and the 2009 subprime crisis are examples of an economic bubble from speculation on technology stocks and real estate.
Fear occurs when people believe the economy is doing poorly and their income will dip in the future, resulting in lower private consumption, which causes a cyclical economic slump, said Mr Sornchai.
Japan's lost decades, from 1991 to the present, and the Great Depression in the US between 1929 and 1939 are prime examples of a cyclical economic slump.
"SCB CIO believes most investors are not speculating, but rather being cautious, which could be the beginning of fear in the future," he said.
With many countries' populations ageing and businesses cutting costs by using technology and laying off workers, a recession could happen if these trends continue, said Mr Sornchai.
