Wednesday 22 November 2017

Double-Dip Recession: What the experts believe

As stock markets tanked this week with no economic news good enough the stop the rot, is the world economy heading for a dreaded double-dip recession?

Seamus Coffey, economist at UCC

As of yet, there is no evidence of a “double-dip” recession but the view took hold yesterday that this is where key economic indicators are pointing.

The animal spirits of the markets have taken over and it will take further data releases to confirm or deny these fears.

From an Irish perspective, the global economy slipping back into recession would further increase the woes which are largely based on a collapse of the domestic economy.

The official view has always been that Ireland will enjoy an export-led recovery.

The prospects of this would be undermined if the countries we hope to sell to begin to contract.

Nearly 90pc of Irish exports come from multinationals operating in Ireland. In many cases these exports will be somewhat insulated from a global downturn as they are in high-growth industries (software, social media) or in very mature industries (pharmaceuticals, medical instruments).

These industries are not without their own risks though.

The real problem we would face if a global downturn was to take hold is that new investment would evaporate.

While it is likely we would maintain our existing levels of employment in the export sector, the prospects of expansion that would generate the employment growth which a genuine export-led recovery needs would be much lower.

It is not clear what will come to pass over the next few months.

A “double-dip” recession could just be a short-term mindset that grips markets for a few days and passes as quickly as it came.

Brian Devine, chief economist at NCB Stockbrokers

The global political consensus for near terms budget cuts in large advanced economies is a policy error which will drive global growth lower.

When the private sector is deleveraging, as in many advance economies, the public sector needs to go the other way to support growth and create employment.

The US does have longer term fiscal problems but in the near term growth is a bigger issue.

This is not to say that Ireland should abandon its plans to cut the fiscal deficit.

Ireland cannot borrow on the international markets, whereas the US can borrow 10 year money at 2pc, which in real terms is free money when one takes account of expected inflation.

In the euro area, liquidity issues are in danger of causing solvency issues because of the lack of a convincing plan to provide a backstop for Euro area sovereigns.

Coordinated aggressive fiscal cuts in the largest economies of the euro area is not the answer.

A more comprehensive package involving the ECB, formally not reluctantly, and the EU will be needed to ease financial tensions.

Whether this is just a slowdown or a major shock will be dependent on Euro area and ECB policymakers.

For the moment this is just a slowdown.

Ireland has never left recession and unlike the consensus we had been expecting Irish GDP to decline in 2011, but we do expect it to grow marginally in 2012 on the assumption that this is just a slowdown.

John White, head of financial management at RSM Tenon

Economic pressures combined with market volatility are causing deep rooted issues to an already damaged pensions landscape. Whilst the industry is used to riding out unstable markets, we have seen activity in recent weeks that will have repercussions that will require people to review their retirement planning and seriously consider the diversity of their investment portfolio.

These conditions demonstrate how crucial it is that people seek advice about their retirement planning and continually review their long-term savings plans.

John Chatfeild-Roberts, chief investment officer at Jupiter Asset Management

If the stock market could ever truly be likened to a roller-coaster ride it would be now.

In recent weeks we have experienced sharp falls and rallies in stock market indices of 2pc, 3pc even 4pc, sometimes within the space of a single day, as investors try to measure the impact of the deepening sovereign debt crisis and worsening economic data battering confidence.

Times such as these test the nerve, resolve and conviction of all of us.

Human psychology dictates that we feel happier and more confident about investing when share prices are rising than when they are falling. But, as I have often found throughout my career, it is times such as these when the best long term opportunities can be seized.

So rather than getting het up by the daily gyrations of the markets and potentially making decisions that may prove detrimental in the long term, it is worth sitting back and thinking carefully about what you are trying to achieve.

Think about your investment objectives and attitude to risk, then run the slide rule over your portfolio to check that your investments are aligned with these objectives and whether there are opportunities to get into areas you like for the long term at a cheaper price.

Kully Samra, stockbroker at Charles Schwab

Fear is not an investment strategy and can be just as dangerous to your investment goals as greed.

We encourage investors to keep their longer-term investment goals in mind and potentially use the recent sell-off to add to equity positions if needed to maintain recommended allocations; while looking to potentially take some profits in some fixed income securities that have benefited from this recent risk-off activity.

But are we in for a sustained bear market as a result of a renewed recession?

Gary Jenkins, economist at Evolution

It has been a heck of a week and yesterday’s risk off trades could be attributed to any one of a number of different concerns.

Economic data and the European Sovereign / banking crisis will probably continue to dominate market action.

This week has seen a continuation of the trend of weaker than expected data and political reaction to the European problems which pretty much amounts to “let’s have a get together a couple of times a year”.

To be fair Nicolas Sarkozy did mention common European bond issuance as a last resort which is in line with our view that such action would only be taken over a weekend when the market was about to collapse.

The one bit of good news through all this volatility is that Italian 10 year bond yields have been stable throughout the last couple of weeks.

As there still seems to be disagreements about the second Greek bail out package the resolve of the ECB and then European Financial Stablity Facility (bailout fund) to stabilise Italian and Spanish bond yields could be tested quite soon.

If we do see a significant move higher in yield from these two sovereigns then we will soon be in last resort territory.

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