US Faces 50% Chance of Recession in 2012

By: EW News Desk Team   Date: 15 November 2011

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EW News Desk Team

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EconomyWatch, News Desk Team

 

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15 November 2011

The odds of the United States slipping into a double-dip recession are placed at 50 percent, with economists from the Federal Reserve Bank of San Francisco saying the world’s biggest economy might not be able to withstand the rippling effects of Europe’s debt crisis.

Gathering storms across the Atlantic threaten a U.S. economy not yet recovered from the last recession, said a report released by the Federal Reserve Bank in San Francisco, adding that “a European sovereign debt default may well sink the United States back into recession.”

"The deteriorating fiscal realities in Europe have been keeping many a trader awake at nights, reliving the nightmare of the near-collapse of financial markets in the wake of the Lehman Bros.  bankruptcy” of Sept. 15, 2008, the bank's Economic Letter said.

The economy was already weakened by disruptions in international trade stemming from the Japanese earthquake and tsunami in March, the report said.

However, if the U.S. economy avoids falling into recession in the first half of next year, the risk of it doing so in the second half of the year should begin to ease, the letter said.

Related: The American economy is in danger of stalling: Mohamed El-Erian

Recessions are typically defined as a consistent decline in gross domestic product across two or more consecutive quarters. The “Great Recession”, as the media often calls it, officially started in December 2007 and ended in January 2009.

According to Reuters, the Fed forecast is more severe than many private economists would suggest. A November 4th poll of primary dealers revealed that Wall Street economists predict a 30 percent chance of a 2012 US recession, compared with 35.5 percent a month earlier.

Related: Real-time worldwide consumer confidence data

Last week the Federal Reserve's vice chairperson Janet Yellen warned on the threat from Europe, saying governments there need to take forceful steps to contain the crisis or risk substantial damage to the United States.

Related: Merkel: Europe in worst crisis since WW2
 Related: SOS: The eurozone can no longer save themselves: Raghuram Rajan

While recent economic data may suggest that gradual pick up in US activity, the government debt crisis that in the eurozone has unsettled financial markets and led to political turmoil, edging the region closer to a near-certain recession.

Many economists, public and private, agree that it would be difficult for the US to remain immune to European problems, given the high level of trade and financial activity of the two regions. For starts, US investment bank MF Global, has already been run aground due to soured European investments.

Related: Europe’s woes stem from a crisis of nationalism: George Friedman
 Related: Europe’s old bank models are obsolete: Gene Frieda


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