The economic growth outlook for developed countries has gotten much worse in the past few months. With the amount of globalization in the business world today, economic concerns abroad can have profound impacts at home. A lot of experts in the field are beginning to wonder: will these events lead to another global recession?
A recent report by the Organisation for Economic Co-operation and Development (OECD) has warned that major economies are likely to slow by the end of 2011. The group predicts that the seven largest economies in the world will grow by just 0.2% in the fourth quarter of 2011. This is compared to their May 2011 estimates of 2.7% Q4 growth. They cited weak economic data, fiscal policy gridlock in the U.S., and the European debt crisis as the main reasons for their growth revision.
Another major reason for the downgraded outlook is that governments have fewer tools to use to combat their struggling economies. Central banks are continuing to hold interest rates at all-time lows to encourage spending, however, these rates have been low for quite some time and their effect on growth is becoming uncertain. There are also many political pressures to cut government spending and tighten budgets in order to deal with growing debt problems. Governments that spent billions of dollars to spur growth in the Great Recession are now in weak financial conditions, and are unable to further stimulate their struggling economies.
While the OECD predicts a slight dip in global growth, they noted that the margin of error on their report is abnormally large due to exceptional uncertainty. They stated that their estimated global GDP growth of 0.2% could actually fall in a range of -1.9% to +2.3%. The main reason for the uncertainty is because the full impact of the Eurozone debt crisis and the ensuing stock market volatility will not be fully known for quite some time. This article by the BBC explains the report’s findings in depth.
While many professionals believe that the economy will face stagnant growth in the coming months, experts have ruled out a recession the magnitude of the 2008-2009 financial crisis. What are your thoughts? Are we headed toward a double-dip recession? Or is this just a temporary lull in global economic growth?