Risk Double-Dipping Recession

There is the V-shaped recovery and the U-shaped recovery, and the mixing of green shoots and weeds. Will the recession double-dip itself? Is there a risk of double-dipping? Here’s a snippet from a Financial Times op-ed:

Risk of Double-Dipping Recession

By Nouriel Roubini – Published: August 23 2009

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.

There are several arguments for a weak U-shaped recovery . Employment is still falling sharply in the US and elsewhere – in advanced economies, unemployment will be above 10 per cent by 2010. This is bad news for demand and bank losses, but also for workers’ skills, a key factor behind long-term labour productivity growth.

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