Michala Marcussen, Global Head of Economics at Societe Generale, suggests that swaying motions are a well-known risk that several bridge builders have fallen victim to; as individual pedestrians cross and the bridge starts to sway in response, these unrelated individuals unwittingly fall into lockstep with one another, amplifying the swaying motions and potentially destabilising the bridge. Key Quotes “When it comes to economics and financial markets, similar risks exist with individual and seemingly unrelated events generating actions and reactions across geographies that in a worst case can result in a synchronised global recession. We consider global vulnerabilities through the prism of leverage and zoom in on correlation metrics, trade and financial linkages to map the risks of spillover. We conclude with a discussion on policy efficiency. Our key findings are: • Excessive debt is at the heart of the current stress: The EM and commodity complex today face deleveraging; of greater concern is the lack of leverage relays elsewhere and ongoing legacy issues that have yet to be addressed. • 20% risk of a synchronised global recession... Combining our different metrics we find that the risk of a synchronised global recession has increased, primarily due to heightened financial stress. We now set the risk of global recession at 20%, up from 10% in December. • ...but not all is bleak: Not all is bleak; US unemployment is historically low, consumers enjoy a significant energy dividend, bank balance sheets have improved and euro area institutions have been strengthened (albeit not as much as we would like). Moreover, the is no further fiscal austerity and even some positive drift. • For the rest of the world, China has already hard-landed: A study of the linkages between China and the rest of the world shows that those sectors that matter most have already hard-landed. There is also growing recognition that shocks tend to be transmitted via financial channels to a much greater extent than through trade channels. • Brexit is a serious risk for Europe ... but not the only issue: Europe faces several issues ranging from the migration crisis, to the Schengen crisis, renewed concern on banks and an upcoming hearing on the validity of OMT... However, Brexit remains our most immediate concern. To our minds this could trigger significant renewed stress in the region. • The dark side of low rates is becoming apparent – fiscal expansion must come next: Our long-held concern over weaker monetary policy transmission is now gripping the broader markets. Faced with renewed economic disappointment, monetary policy alone would suffice and we would expect to see action in the fiscal space. On this front, Japan could pave the way.” For more information, read our latest forex news.