US faces double-dip recession, economist warns

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The US economy is heading into a double-dip recession, which means the pandemic recovery would be W-shaped and not V-shaped as the stock markets seem to believe, warned leading economist Stephen Roach ( Photo).

“The chances of a relapse, not only of the virus but in the economy itself – the so-called dreaded double dip, are very real,” Roach said speaking to CNBC Trading Nation on Wednesday. Roach isn’t the only economist worried about a double-dip recession. On Monday, Nariman Behravesh, chief economist at IHS Markit, said he sees about a 20% chance of a double-dip recession.

Bank of America’s July survey of global fund managers showed that 30% of fund managers surveyed see a W-shaped recovery, up from 21% in June. Only 14% of managers expect a V-shaped recovery, down from the 18% who expected it in June. In May, Nouriel Roubini, also known as “Dr. Doom” warned of an “unprecedented” recession.

Roach, a former chairman of Morgan Stanley Asia, correctly predicted in January that the coronavirus would be far bigger than the Sars that occurred in 2003 and warned of a global economic shock. In June, he also warned that the US dollar would plunge 35% against other major currencies by the end of 2021.

Roach is particularly concerned about demand in the economy and points to China to support his point. “Both economies have been able to bring production back quickly, but they are struggling to bring back consumer demand, especially for face-to-face services where people fear being re-infected,” Roach said.

He added, “This behavioral capitulation on the demand side of the US economy is going to continue to create a lot of problems for businesses, business hires, [and] potential business bankruptcies in the second half of this year.

Roach also warned of the surging US budget deficit, which is expected to be the highest this year since World War II. He added: “Our savings and checking account dynamics are starting to be terrible.”

While several economists have warned of a double-dip recession and stock market crash, investors do not seem fazed by such warnings. The S&P 500 has now recouped its 2020 losses and is up 1.4% for the year. The Nasdaq 100 Index hit new highs thanks to strong gains in tech stocks and is now up nearly 25% for the year.

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