Double Dip

13/08/2010 at 1:04 pm 4 comments

There has been a lot of talk of late about the possibility of another recession – an economic “double dip” – at home and abroad. Even today, as the Eurozone posted GDP growth for the second quarter of a more than respectable 1.0%, markets sold off and the euro weakened, apparently on the back of this concern.

What is going on?

In our view, two things are being confused. On the one hand, authoritative sources such as the Fed and the Bank of England have recently downgraded their growth forecasts. What they are absolutely not doing, on the other hand, is suggesting that growth will turn negative again, which is what some observers seem to be (over) extrapolating from their actions.

It is well known that the global economy faces headwinds. There are doubtless more disaster stories in the pipeline, from unemployed homeowners being dispossessed to nation states facing bankruptcy. But across the world as a whole – and even across America as a whole, or across Europe – all indications are that while the pace of growth might well ease off, it will stay positive and the recovery, however tentatively, will progress.

Things do change of course. The data is not yet available but it seems likely that the Eurozone’s strong performance will have been driven in part by an increase in exports as the euro has weakened by almost 10% on a trade weighted basis since the beginning of the year. An equivalent strengthening in the currency could well see some of that effect reversed. And economic forecasting, as we have observed, is an intractable business at the best of times.

For the moment, however, and knowing what we know, it is our view that the world should take its central bankers at face value, and that talk of a renewed period of negative growth seems … well … Dippy.

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Seeing The Trees For The Wood Slowing Dragon?

4 Comments

  • 1. Slowing Dragon? « The Blog @ Vigilant Financial  |  20/08/2010 at 3:28 pm

    […] at a breakneck pace. (This is of a piece with the situation in developed economies too – as we wrote a week ago, an easing off in growth rather than a “double […]

  • […] in part by the lacklustre performance of equity markets this year, and apparently by all that talk of “double dip”, bond yields have in some places reached record […]

  • 3. The Burden Of Debt « The Blog @ Vigilant Financial  |  10/09/2010 at 11:25 am

    […] remain sceptical of a double dip and constructive on the economic outlook, therefore, but cautiously so. Events over the last couple […]

  • 4. The Year In View « The Blog @ Vigilant Financial  |  20/12/2010 at 2:53 pm

    […] this blog began in July, one consistent view has been that while the world economy would continue to recover, it would do so patchily. Equity markets agreed. At present, the S&P 500 has risen by 11.5% […]

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