Probability of a global double dip high: Hunt

There is a 75 to 80% probability that the world will be in a double dip recession by Christmas according to consultant economist Andrew Hunt.

Friday, October 1st 2010, 5:14AM 5 Comments

by Jenha White

He also believes the world will flip flop between inflation and deflation fears for the next five to 10 years.

He says in New Zealand, the first quarter of 2010 was by no means the real world, and the country was not experiencing a V shaped recovery - it just looked like it.

Hunt believes the global credit crunch which all but disappeared at the end of last year is starting to come back, in the US, in Europe and even in New Zealand.

"New Zealand's banking system relies heavily on the wholesale money markets for marginal funding and a third of its liability is to wholesale money markets not to deposits."

He says wholesale money markets have become dysfunctional, asset markets are weak, lending growth is starting to slow down and there is more saving. At the same time incomes haven't changed and there is less retail spending.

Hunt believes there is already a double-dip in demand but not yet in production.

"What does worry me is that if companies are producing more but no-one is buying products, then warehouses will be full, which means production and employment will need to be cut and incomes will fall.

"Unless something is done to stop saving we will see a double dip by Christmas."

He says the silver lining is that a double dip should solve the inflation problem.

"I think the central banks will start to fear deflation and we will probably get quantitive easing for the second time."

He advises people to not get attached to any particular view of the economy.

Hunt says for the first three months of this year it paid to bet on the V shaped recovery and in the next three months it pays to bet on the double dip and deflation. He believes then there will be a policy response where central banks will start buying assets again to get asset prices up, to get the savings rate down and the global economy moving again.

"If they do that I suspect in a years time we'll end up worrying about inflation and we'll go through this cycle again - I think we're in for a lot of financial volatility and the world will flip flop between inflation and deflation fears for the next five to ten years."

Ultimately Hunt believes people have to save more and that will involve rebuilding balance sheets at the expense of consumption.

Jenha is a TPL staff reporter. jenha@tarawera.co.nz

« Celsius fund being wound up early

KiwiSaver mismatch a 'huge challenge' for advisers »

Special Offers

Comments from our readers

On 1 October 2010 at 9:03 am Mark Stone said:

Who is Andrew Hunt? What are his credentials?

On 1 October 2010 at 9:30 am Editor said:

His credentials are pretty good:
Andrew Hunt Economics was formed in 2001 when Andrew left Dresdner RCM Global Investors, where he had been Chief International Economist.
Andrew worked for four years in the Dresdner / Thornton London office, covering the G7 Economies, before moving to Hong Kong in 1991 in order to spend more time working in the Pacific Area.
Whilst in Hong Kong, Andrew formed strong links with many regional central banks, and the local hedge fund community. Consequently, he was heavily involved in the analysis surrounding the Asian Crisis.
In 1997, Andrew returned to London and took up his international role in the renamed Dresdner RCM Global Investors. During his time at DRCM, Andrew was a frequent traveler to a large number of central banks for research purposes.
Since 2001, Andrew has operated his own economics consultancy.
His current client list of 45 includes a number of prominent asset managers, hedge funds and family offices, together with a number of central banks and other official institutions.
In order to fulfill his research role, Andrew travels extensively in the USA, Europe and the Asian Pacific region.
He is the global economist for Tyndall Investment Management.

On 1 October 2010 at 9:30 am Ken said:

Inflation is on the way up from 1 October 2010, spending is on the way down and saving is on the way up. Result, increasing unemployment an business closures. Recession is here right now. No recovery, more financial loss.

On 1 October 2010 at 9:44 am Mike King said:

First he says: "Unless something is done to stop saving we will see a double dip by Christmas."

Then he says "Ultimately Hunt believes people have to save more"

It's true what they say about economists. If you ask one for the time, he'll have several answers.

On 1 October 2010 at 9:48 am Maurizio said:

I've been saying the same thing since the stock markets recovered mainly thanks to giant concerted injections of cash of Central Banks. The problem is everyone wanted to believe to the "recovery" story. Ask Joe Bloke in the street, he will tell you he never "recovered", or read Prof. Steve Keen work, University of West Sidney: http://www.debtdeflation.com/blogs/2010/09/20/deleveraging-with-a-twist/
It will show you that any recovery will take painful years of deleveraging and depression. Andrew is damn well right!! The only problem is he will be called Cassader..like Steve Keen and me. But Cassander curse was not being wrong....was not to be believed!!