WEALTH MANAGEMENT WEALTH MANAGEMENT
DOUBLE DIP
The US economy plunged into a recession in the 2nd quarter of 1980 and seemed to have emerged out of it by the year end. However the economy slid into a second recession by late
While the macro-economic conditions of the two time periods may be different, it could still be a reality. It is not beyond the realms of possibility that we could fall backwards into the same pattern and double dip into another recession. With the economic stimulus being withdrawn across most economies, the real worry will be whether these economies can stand by themselves without life support from other countries. Most of the recovery has been riding on the billions of dollars of stimulus money that was pumped into national economies by central banks. National debt combined with this massive financial input will definitely weigh heavily upon the overall resuscitation.
Prominent economist Nouriel Roubini has been among the first to warn of a possible double dip. According to him, recent economic data has increased the probability of a double recession shaped like a W1. Martin Feldstein – member of the advisory board to the US President on economic affairs - says, “There is a risk of double-dip recession in 2010. I am not predicting it. The third quarter saw an upturn in the GDP. It rose 2.2% year-on-year. But sequentially, it rose only 0.5%. And two-thirds of this growth was motor vehicle production.”2 A country’s stock market is an important indicator of the strength of its economy and
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MORE TROUBLE AHEAD?
Just when we thought we are out of the recessionary woods, some economists are already talking about a deeper and possibly more prolonged recession. Are we safe yet?
overall business sentiments. However as Ashish Dhawan, Senior MD of Chrys Capital points out, Indian Stocks are around 20% overvalued and he advises caution3. Strong domestic consumption in economies like India and China may keep them insulated to further recessionary tendencies. A key indicator will be the domestic savings rate. Strength of currencies will also play a major role in determining the competitiveness of export dependent economies.
There are some economists who believe that a recovering labour market and the continuity of monetary stimulus will help large economies avoid a double dip. Piero Ghezzi, head of research for Barclays says, “We are extremely comfortable that the U.S. will not be in a double-dip recession any
GDP GROWTH IN PERCENTAGE
1980-1983
+100%
0%
-100%
Q1 Q2 q3 q4 Q1 Q2 q3 q4 Q1 Q2 q3 q4 Q1 1980
1981 1982
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