The world economy could fall back into recession, says European Central Bank Governing Council Member Nout Wellink, who also heads the Dutch central bank.
“Domestic dynamics leave much to be desired, especially in Japan and most European countries, where private consumption and investments are declining or stagnating,” he wrote in the bank’s annual report.
“This poses the risk that the economic recovery makes a false start and will be W-shaped,” the report said, according to Bloomberg.
In both Europe and the United States, production is coming back and financial markets are rising.
But consumer spending lags. And that’s leaving unemployment at high levels – 9.7 percent in the United States.
In addition, government debt is mushrooming in the United States, Europe and Japan.
“Notwithstanding the return of a certain euphoria on the stock exchanges, most risks are still downward,” Wellink wrote.
“Also, we can’t expect any new impulses from monetary policy.”
Indeed, the easy monetary policy already in force could spark a major bout of inflation.
“The very loose monetary policies at the moment sow the seeds for new instabilities,” Wellink wrote.
Low interest rates are pushing investors to emerging markets, which will force asset prices higher there, he says.
Star economist Nouriel Roubini also says another recession may be in store for the U.S.
“A slew of poor economic data over the past two weeks suggests that the U.S. economy is headed for — at best — a U-shaped recovery,” he wrote in a report.
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