The decline in yields for the most part reflects lower growth expectations and lower inflation expectations for the future, a global synchronized downturn in economic activity. The decline seems to be especially severe in Germany, which is now expected to grow only at some 0.7% this year according to some forecasts, and therefore slower than the Eurozone as a whole. Frankly, it is sheer stupidity that the German government is not considering a large infrastructure program right now as the economy is slowing down and the government can borrow at negative nominal yields on a 30-year horizon. And Draghi has recently stated that a more expansionary fiscal stance, especially in Germany, would also make the life of the ECB easier, given that they are constrained by the ELB.
Similar to market monetarists, I believe that market indicators are the best warning signs of upcoming recessions and they can also give us an indication of the stance of monetary policy. Since GDP estimates are only available with a time lag, one has to consider macroeconomic indicators that are available at a much higher frequency. This could be asset prices, for example: bond yields, stock prices, inflation expectations based on interest rate spreads, etc.
Well, as I dais above, the bond markets and the yield curve are flashing severe warning signs. Stock prices are going down too, also in the US, as Trump's stupid trade war is starting to take its toll on the global economy.
Now, another pretty cool indicator is giving us more to worry about it. Google trends is showing us that searches for the word recession on Google (Rezession in German) have been more than doubling in recent months. If that is not something that should give us concern, then I don't know what is.
I have also plotted the same graph for Spain, Great Britain, and the UK. The slowdown in Spain seems to be less severe as of now, which is also in line with macroeconomic forecasts. The Spanish economy is still doing quite well.
For the UK, the graph is somewhat dwarfed by the extreme spike that happened in 2016 right after the Brexit referendum happened.
For the US, one can also see that searches for the word recession have increased, especially over the last couple of months. The Fed has lowered its interest rate again for the first time in 10-years and financial markets expect more rate cuts to follow by the end of this year.
Overall, I would say that the global economy is slowing down considerable and we can expect some difficult times ahead in the next one to two years unless Central Banks start with significant rounds of monetary easing to fight the downturn.