From Overseas Press

Slowdown looming but no double dip

(Agencies)
Updated: 2010-06-08 09:20

The global economy looks likely to avoid a relapse into recession, although the next six months may be anemic, with three main causes for concern.

Fears of Europe's festering debt troubles refuse to subside. Friday's US employment data was a disappointment. And China's red-hot economy may be cooling a bit.

These all point to a looming economic slowdown, but it would probably take something more serious to trigger another all-out global slump.

"No, this is not a sign we are about to double dip," said Ethan Harris, head of economics research at BofA Merrill Lynch Global Research. "Double dips happen when there is a policy mistake, which we do not expect."

Policy mistakes would include raising interest rates or slashing government spending too soon. The European Central Bank and Bank of England both hold policy-setting meetings on Thursday and are widely expected to hold short-term borrowing costs steady at record lows.

Avoiding budget-induced mistakes may be more difficult, particularly for European countries under pressure to get their public finances on firmer footing or risk the wrath of debt-weary financial markets.

Greece, Portugal, Italy and others have announced deep budget cuts. Germany, whose finances are less strained than most of its neighbors, plans to start scaling back its crisis-fighting stimulus next year, a senior German official told Reuters.

US STILL GROWING, BARELY

For those fearful the US economy is backsliding, Friday's employment report was downright frightful. The private sector managed to generate just 41,000 jobs in May, far short of the 190,000 that economists had expected.

Harm Bandholz, chief US economist at UniCredit Research in New York, called the jobs data "really terrible" and predicted payrolls may shrink in June because temporary workers hired to help with a once-a-decade census will be out of work.

Ironically, the weak state of the labor market may help keep the US economy out of another recession. Because companies have been reluctant to rehire or expand despite a growing economy, they have little need for further cutbacks even if demand falters.

"The question right now is, what is the pace at which we enter the second half of the year? We have some signs of a slowdown," Bandholz said.