Economic Outlook: Hedging confidence

By ANTHONY HALL, United Press International  |  May 26, 2010 at 8:50 AM
share with facebook
share with twitter

The Organization for Economic Cooperation and Development ramped up its forecasts for 2010, just as a few declared a double-dip recession was possible.

Signs of a downturn are most evident in stock markets, which have been jolted out of an upswing that began in March 2009. Technically a step beyond a correction of 10 percent, the Dow Jones industrial average is flirting with a bear market -- a 20 percent drop off its peak -- dipping under 10,000 points briefly Tuesday for the first time since early February.

Negative numbers have been the norm since early May when the euro just couldn't take it anymore. The euro is down 15 percent against the dollar since the first of the year, graphically down from $1.50 in November to less than $1.25 in recent weeks. The maddening gestalt is the connection between debt in Greece and prosperity in the rest of the eurozone, except the International Monetary Fund says Spain is now in trouble, as well.

Prosperity may be too strong a word but the OECD said Wednesday it had more confidence in a recovery in the United States, Japan and Europe.

The OECD has 31 members, which are now forecast to show economic output growth of 2.7 percent this year and 2.8 percent in 2011, an increase from the prediction six months ago of 1.9 percent this year and 2.5 percent next year.

"We're slowly moving from a policy-driven recovery to a self-sustaining recovery," The New York Times quoted Pier Carlo Padoan, the OECD's chief economist, as saying.

But Robert Barbera, chief economist for ITG, told The Wall Street Journal, "A double-dip recession is a genuine risk. I'd place it at 20 percent as opposed to 5 percent a few weeks ago."

The greatest fear is that Greece, then Spain, then others, will default on their debts, dragging down Germany, France and others. Barbera said, "We have some chronic problems in Europe, but I don't see it leading us to a Lehman-style contagion," but others are not so sure.

In the same news cycle, St. Louis Federal Reserve President James Bullard, in London, called the odds that spreading -- make that escalating -- defaults in Europe could result in "worldwide recessionary shock" are unlikely. The same day, University of Maryland economist Peter Morici said: "Greece is insolvent. No austerity or new taxes will pay its debts."

Morici went on to say Germany and the European banking system would not shoulder the debts of Greece and Spain and that the Atlantic Ocean was not wide enough for overwhelming debt troubles to emerge in the United States.

"Excessive borrowing will cause the bond market to render the same judgment on Washington as it will for Athens and Madrid," he wrote.

Clearly, if confidence was a commodity, it would be deeply hedged by now.

In international markets Wednesday, the Nikkei 225 index in Japan rose 0.66 percent, while the Shanghai composite index rose 0.12 percent. The Hang Seng index in Hong Kong rose 1.11 percent while the Sensex in India 2.28 percent.

In Australia, the S&P/ASX 200 gained 0.98 percent.

In midday trading in Europe, the FTSE 100 index in Britain gained 2.33 percent while the DAX 30 in Germany rose 2.32 percent. The CAC 40 index in France added 2.86 percent while the pan-European DJ Stoxx 50 rose 2.37 percent.

Related UPI Stories
Trending Stories