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Experts weigh in on the likelihood of a double dip

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Published on: Thursday, September 02, 2010

With the stock market seemingly locked into yoyo mode and alarmists warning a double dip recession is in train, how scared should investors be? Peter Switzer pits Woodhall Investment Research’s Ron Bewley against Herston Economics’ Clifford Bennett on Sky News Business Channel’s SWITZER to uncover what’s in store.

Bewley’s say

While Bewley assures the global economy will not crash as low as mid-GFC, he admits the outlook is not one to be overly optimistic about either.

“I think it’s not too bad. It’s not good. It never was going to be good but it’s nowhere near a double dip. It is just crunchingly boring slow growth.

“If you actually look at GDP, it’s almost back to where it was pre-GFC in the States,” says Bewley. “0.6 per cent increase on the next figure takes you back to the 2007 figure. Of course, that means no growth over those three years, which isn’t good but it’s not as though it’s hell in a hand basket.”

On the plus side, Bewley says that Australia’s decreasing dependence on the US will work in our favour.

“We don’t have as much to do with America as we used to,” he says. “We’ve broken away in terms of fear, in terms of excess volatility, and now it’s time to say ‘well maybe we can go somewhere else on our own’.”

Bennett’s say

In contrast to Bewley’s cautious view, Bennett is outwardly optimistic on the future of the global economy.

“I think there’s a minus 30 per cent chance of a double dip recession … as in, it’s not even in the solar system,” he says.

Europe, for instance, is showing promising growth.

“I forecast that European growth in the midst of the Euro crisis – which was laughable fear of spin – but in the midst of that, I doubled my GDP forecast for Euro zone by year-end to two per cent. We’ve already seen Germany clock that,” he says. “It’s weak today but I think we’ll see strength.”

The strengthening global economy is not limited to Europe, however.

“The whole world is rallying quite nicely in a way. I mean, we’re a long way from July’s lows and even at current market rates and equity markets, we’re 50 per cent above where we were a year ago,” he says.

What astounds, says Bennett, is the way in which economists can still argue a bear market.

“The consumer and the business investor have been completely overwhelmed by bearish sentiment and it’s emanating from the US, which is the heart of misery in the world at the moment and they’re projecting that onto the rest of the world … The US, I always said, would be first into recession, last out of recession.

“But if we stop looking at the US and start looking at Asia – and why we look at Asia is Australia coped with the GFC better than any other western country. Why? Because we’re the only western country in Asia. Asia is a strong economic region,” he argues.

Check out Peter Switzer’s SWITZER on Sky News Business Channel, Monday to Thursday from 7pm.

Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

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