August 19th, 2011
05:18 PM GMT
London (CNN) – As markets fall and economists talk up the prospect of a new recession, the end of this week will bring some welcome relief to investors who have seen $6 trillion wiped off global stocks in the past month alone.
Markets in Asia have lost 15% while shares in the U.S. are down between 5% and 9% as of Friday’s start of trading in New York. Yet it’s European stocks that have suffered the most –down nearly 20% year to date – reflecting persistent concerns that the eurozone is fast unravelling.
Scott Shellady, of ICAP U.S. in Chicago told us on the show “I have a European passport and I don’t know what it will be worth in 12 months time.”’ He adds the region could by then have “confederate money for all I know.”
So are will there be a double dip?
It depends who you ask and where they are.
During the past week, I’ve found that (over an admittedly low sample size) European investors are more bearish, whereas those across the pond –whilst sober- are optimistic the U.S. might just scrape past without shrinking growth.
When asked if we were heading back to 2008, London-based Michael Hewson of CMC Markets cautioned that little had actually changed since the credit crunch. “I don’t think we’ve really solved any of the problems,” he said.
According to Hewson, we are seeing a hangover from policymakers’ decisions to bailout the banks. Now that debt has found its way onto countries’ balance sheets. “It’s just filtered across,” he added.
Some economic indicators in the U.S. have already returned to levels we saw during the last financial crisis. Notably, the Philly Fed Index of manufacturing activity in the American mid-Atlantic, which went negative for the first time since July 2009.
A recent Gallup poll published before the last two week’s sharp losses found confidence in the economy was perilously close to readings in 2008 at the start of August.
Investment banks like Morgan Stanley, Citigroup and JP Morgan have fanned the flames this week by slashing their estimates for world growth over the next two years.
Nevertheless, they are expecting growth.
Those in charge of monetary and fiscal policy are walking a tight-rope between weaning their countries off debt, whilst trying not to stamp out the dying embers of the recovery.
That’s something Richard Fisher, President of the Dallas Fed is well aware of. On World Business Today he said, “this is a fear induced type of sell-off. I personally don’t see negative growth but I think it will be a long slog coming out of this.”
Fisher added: “‘Economic forecasting is making astrology look acceptable.”
We’ll ask our guests to bring their crystal balls next time.
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