50/50 Chance of Global Recession

Michael Spence, Nobel Prize-Winning Economist: 50 Percent Chance Of Global Recession

The Huffington Post      First Posted: 8/26/11 04:07 PM ET Updated: 8/26/11 11:23 PM ET

Michael Spence, professor at New York University’s Stern School of Business and winner of the 2001 Nobel Prize in economics, told Bloomberg Television Wednesday that there’s “probably a 50 percent” chance of the global economy slipping into recession.

The possibility of the U.S. dipping back into recession has been of particular concern to economists. And Spence says any significant downturn at home would likely spread throughout the globe.

“I’m quite worried,” Spence told Bloomberg Television in an interview in Hong Kong. “A combined downward dip in Europe and America, which is a good chunk of the industrialized economies, I’m quite sure will take down growth in China particularly, and that will then immediately spread to the rest of the emerging economies.”

A slew of recent economic data indicates the economy is slowing, if not soon to enter recession. This Spring, the U.S. economy grew at a rate of only 1 percent, according to the Commerce Department. GDP growth has been adversely affected by weak consumer spending — which accounts for 70 percent of the U.S. economy — and high levels of unemployment, economists say.

Still, most economists in a recent survey said a second recession isn’t likely, putting the possibility of such a downturn within the next 12 months at 26 percent — half that of Spence’s estimation. Others seem to agree more with Spence, such as Meredith Whitney, who noted “increasing signs” of a double-dipearlier this month. So is history on Spence’s side: 9 of 11 recessions since World War II were preempted by periods of growth of 1 percent or less.

What will it take to preempt a global downturn? “Bold action on both sides of the Atlantic,” Spence says.



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