Readers Question: How likely are we to go into a double dip recession?
There are many reasons to be gloomy about the current global economic prospects. A technical recession involves two consecutive quarters of negative economic growth. We may avoid this actual fall in GDP, but we will definitely experience below trend economic growth – a period of rising spare capacity, high unemployment, and stagnant real incomes. But, there is also a danger this stagnant growth could become worse and we could experience another recession.
There is a longer post here on the causes of the current double dip recession
But, in short, the outlook is grim
- Spending cuts will depress Aggregate Demand and consumer confidence
- Slow growth around the world
- Banks still recovering from credit crunch and lack of finance
- Eurozone lacks real leadership and flexibility to deal with problems of slow growth and high unemployment.
- I’m not sure about the political will to go for growth. Policy makers have been spooked by bond market issues in Europe and have put deficit reduction above increasing real GDP.
- Quantitative easing could be used as a last resort, at least in US and UK, but, Central Banks will be hesitant to go for more rounds of a relatively untested policy.