Leading US economist and Nobel laureate Paul Krugman sees a 30-40% chance of the US re-rentering recession this year, and the conditions that would cause that would almost certianly be replicated in other countries, including New Zealand, with the same result.
More evidence that a second wave of recession may be on its way came yesterday in the form of US housing data. US housing is where the global recession started and it is vital that this sector get back on an even keel if the US economy, and with it the world, is to enjoy good growth. So, news that housing sales sunk by 16.7% in December, well beyond economists’ expectations and the worse fall in 40 years of records, is worrying. The drop further cements fears that the ‘recovery’ we have seen has been entirely a product of government stimulus and there is no real growth from the private sector coming through to sustain it. Once the stimulus dries up, so might the growth.
Here’s what some analysts had to say:
The numbers “clearly indicate that the rebound in housing demand observed so far has been largely supported by government programs,” Anna Piretti, senior economist at BNP Paribas, wrote in a research note Monday
The report “places a large question mark over whether the recovery can be sustained when the extended tax credit expires,” wrote Paul Dales, U.S. economist with Capital Economics.
Government stimulus is meant to work like a defribulator, an injection of energy to get the economy going again. But eventually the economy’s heart has to start beating for itself again. A government can’t afford to keep on trying to kick-start it.