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The risk of a double-dip recession is rising

Posted By admin On August 24, 2009 @ 9:34 am In Money Watch | Comments Disabled

Nouriel Roubini
Financial Times [1]
Monday, August 24, 2009

The global economy is starting to bottom out from the worst recession and financial crisis since the Great Depression. In the fourth quarter of 2008 and first quarter of 2009 the rate at which most advanced economies were contracting was similar to the gross domestic product free-fall in the early stage of the Depression. Then, late last year, policymakers who had been behind the curve finally started to use most of the weapons in their arsenal.

That effort worked and the free-fall of economic activity eased. There are three open questions now on the outlook. When will the global recession be over? What will be the shape of the economic recovery? Are there risks of a relapse?

On the first question it looks like the global economy will bottom out in the second half of 2009. In many advanced economies (the US, UK, Spain, Italy and other eurozone members) and some emerging market economies (mostly in Europe) the recession will not be formally over before the end of the year, as green shoots are still mixed with weeds. In some other advanced economies (Australia, Germany, France and Japan) and most emerging markets (China, India, Brazil and other parts of Asia and Latin America) the recovery has already started.

On the second issue the debate is between those – most of the economic consensus – who expect a V-shaped recovery with a rapid return to growth and those – like myself – who believe it will be U-shaped, anaemic and below trend for at least a couple of years, after a couple of quarters of rapid growth driven by the restocking of inventories and a recovery of production from near Depression levels.

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[1] Financial Times: http://www.ft.com/cms/s/0/90227fdc-900d-11de-bc59-00144feabdc0.html?nclick_check=1

[2] Image: http://prisonplanet.tv/signup.html

[3] Double-Dip Recession Still in the Picture: Roubini: http://www.prisonplanet.com/double-dip-recession-still-in-the-picture-roubini.html

[4] Brown embarrassed as France and Germany come out of recession but Britain lags behind: http://www.prisonplanet.com/brown-embarrassed-as-france-and-germany-come-out-of-recession-but-britain-lags-behind.html

[5] US credit shrinks at Great Depression rate prompting fears of double-dip recession: http://www.prisonplanet.com/us-credit-shrinks-at-great-depression-rate-prompting-fears-of-double-dip-recession.html

[6] UK economy in double-dip recession: http://www.prisonplanet.com/uk-economy-in-double-dip-recession.html

[7] IMF warns of Great Recession, Africa at risk: http://www.prisonplanet.com/imf-warns-of-great-recession-africa-at-risk.html

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