What developments could cause a double dip in the United States and Europe?

- "Our main scenario does absolutely not include a double dip (return to recession) in the United States and the euro zone. It predicts only slow growth, due to the ongoing private sector deleveraging, the distortion of income sharing at the expense of wage earners, the slowdown in global trade, the reduction in fiscal deficits, deindustrialisation, the persistent weakness of residential property, the deterioration in the labour market situation, etc."
- "However, we have to look at the developments that could cause a double dip:
• a far sharper rise in the US household savings rate, due to the deterioration in the labour market situation and the wealth loss;
• a higher fiscal multiplier (effect of the reduction in fiscal deficits on growth) than what is normally expected, due to the fact that the fall in the fiscal deficit is not offset by a rise in private demand. In Greece and Ireland, the fiscal multiplier seems to be higher than 1;
• a far sharper fall in wages in Europe (excluding Germany), in order to rebuild corporate profitability;
• a far more pronounced slowdown than expected in China and other Asian countries, and therefore in global trade."

Natixis Flash Economics 447 20100909

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