The Downturn Revisited – Preparing For Nessie

06/01/2010

By Rohit Talwar

Over the last couple of months we've witnessed a growing sense across the business and government sources that we talk to that we are heading for a multi-dip recession. While most of the European Union countries have officially pulled out recession, the UK is still struggling to launch and President Obama is issuing ever-starker warnings about the risk of a double dip recession.

Conversations with investment bankers and those with connections 'on the inside' of the banking system are all suggesting the potential for a massive collapse that could make the last two years look like a minor correction.
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However, rather than a double dip, our view is that we are looking at more of a roller-coaster decade in which we will see regular rises and falls in different economies around the world. Our colleague Ian Pearson refers to this as a 'Loch Ness Monster' downturn - with uneven peaks and troughs emerging with very little warning. The pain will be felt quite unevenly. Those economies that have done most to curb or prevent their banking system from entering into huge leveraged debt transactions and complex high volatility derivatives contracts are likely to fare best - or suffer the least relative pain.

Perhaps the most apocalyptic view in recent weeks came from Société Générale in its 'Worst Case Debt Scenario' report which warned clients to prepare for a possible "global economic collapse" over the next two years. They highlighted that total US public and private debt was now 350 per cent of GDP and many years of deleveraging would be inevitable - even without further shocks. The report warns that even without any new public spending, within two years, government debt would rise to 125 per cent of GDP in the US... continued on page two >

 

 

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