After the China trade deal, the probability of a US recession in 2025 is now at 30%, and the tail risk coming from a complete collapse in trade between China and the US has been removed.
Looking ahead, the key issue for markets is to monitor the speed with which confidence is restored among consumers, corporates, and foreigners. Is trust and confidence going to rebound quickly, or is it going to take several quarters or several years?
One particular area to watch is tourism. Tourism into the US makes up 10% of the country’s GDP, and the observed 30% to 40% decline in visitor arrivals from Canada and Europe is having a negative impact on US airlines, hotels, and restaurants, see chart below.
The bottom line is that markets may recover quickly from this episode. But it will likely take some time before confidence is restored among consumers, corporates, and foreigners.
Note: The series is calculated using tourism-related output as % of GDP. Tourism-related output includes the direct output from tourist spending, as well as the indirect and induced effects captured through input-output multipliers. Sources: Bureau of Economic Analysis, Apollo Chief Economist
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