Fears of a double-dip recession escalate

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Thu, 12 Aug 2010 5:34p.m.

Finance Minister Bill English

Finance Minister Bill English

By Simon Shepherd

The spectre of a double-dip recession has risen after bad economic news out of Britain sent sharemarkets tumbling.

Combine that with slowing growth in China and a stalling recovery in the US and you have economists warning that we are in for a choppy ride.

It is probably one of the hardest times to sell investments, but Fund Manager Carmel Fisher is on the road to sign people up.

“We will probably have bad news for the next six months or so,” says Ms Fisher. “What does that mean for Kiwisaver investors? Well, that is par for the course, but Kiwisaver investors are long term investors.”

And they will need patience.

After 18 months of great market returns, Kiwisaver funds have gone backwards and that was before sharemarkets reacted badly to news overnight from Britain.

The UK economy is facing a major rebalancing away from private and public consumption and towards net exports. Achieving that rebalancing while confronting those headwinds will lead to a choppy recovery.

In the US, more bad economic data has people talking about deflation - where prices and wages go backwards.

On the NASDAQ a years gains were wiped out in a day and traders were calculating the deflation odds.

Japan suffered deflation in the 1990's when the economy stagnated. If it happened in the US it would mean a double-dip recession - something that has only occurred three times since 1850.

“The international economy has hit a bit of a soft patch,” says Westpac Economist Brendon O’Donovan. “We are seeing growth momentum waning in the US, UK and also in China.”

China - our third largest trading partner - has been one economy helping our recovery.

But the government has been talking down any prospect of slipping backwards.

“I am not concerned about us going into a double-dip,” says Finance Minister Bill English. “It is possible, but the signs are we have reasonably steady growth.”

The economists agree. As long as commodity prices hold up and demand continues in Asia, they say it is unlikely New Zealand will experience the dreaded double-dip.

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Comments

12 Aug 2010 08:54p.m.

JKay wrote:

Good call Geoff - there never was a recovery is right. The truth is the worldwide economic system is broken - paper houses built atop paper houses. We cling like addicts to a growth model in an over-populated planet and thus we are clinging to a model that CANNOT be sustained. We adopt a head in the sand approach, hoping the problems will magically disappear but this just does not match with the reality. The housing market will not come right until new home owners can once again viably buy a house - that means house prices have to fall much lower and/or wages rise much higher. Our only other option is to sell our land off to overseas buyers - which would come back to bite us badly in the long term.

12 Aug 2010 07:56p.m.

Geoff wrote:

“I am not concerned about us going into a double-dip,” says Finance Minister Bill English. Might I suggest the Minister view 1/ American Economic Cycle Research Institute’s (ECRI) Weekly Leading Index 2/Baltic Dry index 3/Yeild on US 10 year Treasuries The list goes on...and on....and on.There never was a recovery....so no double dip.Only more debt money stimulis to make it look like "it's fixed".It ain't.