Tags: Levy | recession | US | economy

David Levy: US Vulnerable to Global Recession

By Michael Kling   |   Tuesday, 05 Nov 2013 07:36 AM

The U.S. economy is vulnerable to turbulence from abroad that can drag it into a global recession, says economist David Levy of the Jerome Levy Forecasting Center.

If policymakers in Europe and emerging markets fail to support their economies, they could spark a global recession that knocks out the U.S. economic recovery, Levy warned, according to the International Business Times.

"While U.S. private financial vulnerability has been reduced somewhat since 2007, global financial vulnerability has increased," Levy wrote in a note from the Jerome Levy Forecasting Center, the Times reports.

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Europe must "avoid the pitfalls of overcapacity, a crippled banking system, huge sovereign debt problems and constraints," he said, adding that long-term value investors should be cautious about investing in Europe.

Emerging markets need stable exports and calm financial markets in order to avoid recessions.

China may not reach a growth rate of 7 percent next year, Levy noted.

The Chinese government "remains caught between the need to provide fiscal and monetary support of the expansion and the desire to limit already severe financial imbalances," he wrote, according to the Times.

Although many economists have expressed concern about China's slowing growth rate, the country's non-manufacturing Purchasing Managers' Index (PMI) increased from 55.4 in September to 56.3 in October, indicating its economy is recovering, the BBC reports. 

A PMI reading over 50 means the economy is expanding.

In addition, China's manufacturing PMI reached an 18-month high in October.

"The non-manufacturing sector should continue to develop at a stable rate over the next few months, though there still needs to be more market training and promotion to further release the service sector's potential," said Cai Jin, vice-president of the China Federation of Logistics and Purchasing, according to the BBC.

The Chinese economy grew 7.8 percent in the third quarter from the previous, accelerating its expansion from a 7.5 percent in the second quarter, the BBC reports.

"There are sufficient factors supporting China's economic development," China's President Xi Jinping told the state-owned Xinhua news agency, the BBC reports. "We are confident that the Chinese economy will keep growing in a sustained and healthy way."

The country will continue to implement reforms for sustainable growth, he said. "The more China is developed, the more the country will open up."

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