With many parts of the eurozone entering or already in recession, and the OECD recently putting Australia, Germany and Italy into recession, one has to wonder if the feeble US recovery can skirt a global recession. At the outset, it must be remembered that US domestic spending power is no longer the prime mover in today?s global economy. That era is unlikely to return.

There are structural forces that have been steadily deepening. With each business cycle in the past 20 years, it has taken longer to return to growth and to restore full employment than before. The US is about to enter its fourth year of recovery. The median household income is considerably lower than it was in June 2009, when the recovery began. It is likely to be lower still in November when Barack Obama faces re-election.

Today?s high leverage has made profits hugely volatile. Profits moving to their post-war average percentage of GDP would probably lower American stock prices from recent highs. Unprecedented fiscal and monetary stimulation since the collapse of the credit bubble has kept deflation at bay?but the efforts to perpetuate inflation are reducing real incomes, guaranteeing the European sovereign debt/banking crisis will savage today?s overvalued and over-leveraged stock markets.

Recent US payroll numbers showed a 115,000 drop in joblessness, barely enough to match population growth. And the ratio of Americans seeking work continues to go in the wrong direction, which flatters the official unemployment number. It fell a decimal point to 8.1% last month. If no one had dropped out of the labour market, the official rate would have risen. According to the Bureau of Labour Statistics, US small business creation is in a long-term secular decline. In 2010, it hit a historic low: just 8% of all US businesses were less than a year old, against 13% in the 1980s.

But this is not necessarily the case. Graph 1 shows which percentage of the 39 OECD countries across the world have their leading economic indicators (LEIs) in expansion. I have used the 12-month rate of change of the amplitude-adjusted LEIs to determine expansion or recession. It is clear that there can be some severe stress in the 39 OECD countries without the US falling into an NBER-classified recession. In July 1998, only 10% of the OECD country group was in ?expansion?. There was a sympathy sell-off from the US stock market, but no US recession. In March 2003, just 15% of the OECD group was in expansion?again, a US stock market sympathy sell-off, but no official US recession. In June 2005, just 32% of the OECD group was in expansion?there was a tiny US stock market sell-off but no recession.

With less than 50% of countries in expansion, one could argue this would be a good definition of a ?global recession?. In fact, it would appear when the index of percentage of OECD countries in expansion falls below the 50-60% mark it is a good warning for a US stock market peak, but there is no threshold above 10% that guarantees a US recession. You can see that from June 2011 the index dropped below the red warning zone and a stock market correction ensued in sympathy. In October 2011, the index bottomed with just 18% of OECD countries in expansion (according to the 12-month growth rates of their OECD LEIs) The stock market bottomed slightly before this.

US-China trade as an economic indicator

Currently, international trade data suggests that both China and the US are undergoing significant, near-recessionary slowdowns in economic growth, if not outright recessions, which we strongly suspect is already the case for China, but not the US, which I believe will only skirt the edge this quarter. Charts 2 and 3 illustrate the period of time that the volume of either US exports to China or US imports from China have taken to sustainably double since January 1985. And by ?sustainably double?, I mean to exceed a previous level at which the volume of trade has doubled, without having fallen back below that level since.

In looking at US exports to China, I see that although the volume of US exports was well above the previous doubling line of $2,553.6 billion for much of 2007 and 2008, the crashing of exports as the US went into a full-blown recession in December 2008 extended the doubling period to 65 months. I likewise see a similar pattern for what the US has imported from China since January 2006. Here, the US recession, which deepened severely in late 2008 and early 2009 with the large-scale failures in the US auto industry, also pushed the amount of time it has taken the volume of Chinese goods and services consumed in the US to double its previous mark. At present, it is six years and counting…

Since my research shows that international trade may be used to diagnose the relative health of national economies, what this data suggests is that the US economy has essentially ?gone flat? in the period since those darkest days of the ?Great Recession?, registering only minor gains in the period since.

By contrast, China?s economy has grown more strongly, at least until December 2011. What would be interesting to see is how those economies that have been tightly linked to China?s growth will fare now that its economic tide has changed. I would expect those nations whose trade with China involves the export of raw materials to the Chinese will be among the most negatively affected. Australia looks particularly vulnerable in this regard.

Historically speaking, recessions have occurred on an average of about every 6-8 years regardless of monetary or fiscal policies, the strength of the economy or global peace?they occurred nonetheless.

In 2011, the world economy was just a whisker away from a recession due to the dual impact of the Japanese earthquake and tsunami and the European debt crisis. Had it not been for the combined efforts of the Fed through ?Operation Twist? and the Long Term Refinancing Operations of the ECB, a drop in oil prices and a plunge in utility costs due to the warmest winter in 65 years, it is entirely likely that we may have already been discussing the current ?recession?.

Export shock

With the eurozone slipping into recession, combined with the economic slowdown in China, the most likely event will be an export-related slowdown for the US. The recent plunge in durable goods, in factory orders, and in many of the regional manufacturing reports points to early signs of a slowdown. The eurozone accounts for about 20% of US exports and profits, and any slowing of consumption due to their economic ills will wash ashore in the US.

Liquidity crisis

A resurgence of the eurozone crisis that leads to a ?liquidity shock? would likely stall the global economy. While the ECB has currently committed funds to provide liquidity to the eurozone, the problem of a single large potential default issue from either Italy or Spain, or even a combination of events through the entire region, could quickly create a liquidity crisis.

ECB?s Long Term Refinancing Operations (LTRO?s) temporarily calmed financial markets around the world. However, it is a temporary solution that will ultimately fade. The ECB has already stated that they have done enough in this regard and are unlikely to provide further liquidity in the future. This is a potential problem, given the difficulty in trying to get European leaders, particularly Germany and France.

Each financial injection to support the economy has had a diminishing rate of return, and each time these programmes have ended the economy has quickly begun to weaken back towards recession.

Austerity, as a measure, must be done when economies are growing strongly with a high employment level that offsets the cuts to government spending and support. Today, that is not the case in either the Eurozone or the US. A global recession is definitely on the cards post-May 2012.

The author is CEO, Global Money Investor