Renee McGaw writes in the Denver Business Journal that although the global economy is showing signs of bouncing back, the recovery may be temporary, a senior economist for the Economist Intelligence Unit told members of the World Trade Center Denver on Thursday.
“There is a very strong chance of a double-dip recession” in the United States, said Leila Butt, senior editor and senior economist in the East European department of the Economist Intelligence Unit’s (EIU) Country Analysis and Forecasting division.
“Things could be much worse in 2011 than we currently expect, which is when all these stimulus measures run out,” Butt added.
EIU is a subsidiary of London-based The Economist Group, which publishes The Economist magazine. The EIU made its presentation at the World Trade Center Denver’s annual meeting, held at the offices of Holme Roberts & Owen LLP in downtown Denver.
U.S. growth is expected to decline 2.3 percent this year and rise 1.7 percent in 2010, Butt said. But growth will decelerate to 1.2 percent in 2011.
Most of the U.S. recovery in the second half of 2009 and first half of 2010 will be due to businesses’ need to restock following a freeze on capital investment over the past year. But that won’t last, Butt said.
“You are going to get a recovery in U.S. growth in the second half of this year and into 2010, simply because of this restocking … but that’s going to peter out, as is the fiscal stimulus package, and businesses are going to be under much more pressure than in the past as well, not just because of the financial sector but because U.S. consumer demand is going to be much lower than in the past. Businesses are going to be focusing more on cost-cutting rather than raising production,” Butt said.
Consumer spending accounts for 70 percent of U.S. gross domestic product, but high debt and job losses will keep consumers from spending as much in the next few years as they have in the past, Butt said.
Rising government budget deficits also create the possibility of what Butt characterized as an unlikely, but worrisome, possibility: that emerging countries will stop buying U.S. securities, causing the U.S. dollar’s value to collapse.
Last spring, U.S. credit rating agency Standard & Poor’s cut its outlook for Britain’s sovereign rating to negative, citing its high debt levels, raising the possibility that the country might lose its top-tier AAA rating.
It would have a big impact on the economy if the same thing were to happen to the United States’ credit rating, Butt said.
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