Economist Paul Donovan on the economy: Double dip fear overblown

Concerns about double dip seem to be rising, as markets look at slowing sentiment indicators in the global economy. However, sentiment is supposed to slow at this stage of the cycle - if more market participants had been around in the last recession, they would realise that.

A double dip would suggest global growth falling sharply next year - to maybe 2% (i.e. a number well below trend). To get there from this year's projected growth of circa 4% would take a significant policy error. There are uncertainties (per Chairman Bernanke yesterday) but double dip remains only a risk.

The greatest risk of policy error probably lies with the Euro area banking system. If Euro zone banks are forced to disintermediate from the economy (via concerns over counterparty risks etc), that would have a global impact.

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