Double-dip fears across the West as confidence crumbles
The Western world is at mounting risk of a double-dip recession after key measures of confidence collapsed in both the United States and Europe, with Germany suffering the steepest one-month fall since records began in the 1970s.
By Ambrose Evans-Pritchard
30 Aug 2011
The US Conference Board’s index of consumer sentiment in August plunged to the lowest level since the depths of the slump in 2009, falling to 44.5 from 59.2 in July. Future expectations fell even harder.
The drop was far steeper than expected and follows grim warnings over the weekend from Christine Lagarde, new chief of the International Monetary Fund, that the global crisis is entering “a dangerous new phase” .
The fund has slashed its growth forecast for America and Europe, according to a leaked draft of its World Economic Outlook. It has called on both the US Federal Reserve and the European Central Bank to stand ready for “further easing of monetary policy” – implying a fresh blast of quantitative easing (QE) by the Fed.
The minutes of the Fed’s meeting in early August show that a number of committee members called for more “substantial” stimulus, suggesting that they pushed for further bond purchases or ‘QE3’.
The Fed’s so-called “Gang of Three” hardliners has already shrunk to two. Minneapolis Fed Narayana Kocherlakota said on Monday that deflationary pressures are building again. “Increasing policy accommodation might well be appropriate,” he said.