No ‘double-dip’ recession threat from Euro crisis

Despite the slow recovery of the global economy, the Euro crisis will unlikely result in a double-dip recession, as consumer spending in major industrialized countries remains high despite relatively high unemployment rates, a senior economist says.

“We have seen a slow economic recovery — but there is absolutely a recovery,” UBS Investment Bank managing director for global economics Paul Donovan told a press conference Tuesday.

“Consumers are confident enough to keep spending money even with a relatively high level of unemployment, such as in the United States and Spain,” he added.

Donovan said that markets had lost no confidence in the credibility of efforts to put economic recovery on a sustainable path, as proven by the improvement in consumer confidence in countries.

“I don’t believe there will be a double-dip. There will be no second recession globally,” he said when commenting on a World Bank statement that said a double-dip recession could not be ruled out.

The World Bank said that slower growth in developed economies resulting from the Euro crisis would deprive developing countries

of healthy markets for their goods and would cut into investment.

“If markets lose confidence in the credibility of efforts to put policy on a sustainable path, global growth could be significantly impaired and [the possibility of] a double-dip recession could not be excluded,” said the report, as quoted by Reuters.

Donovan said many people were worried labor markets might cause a double-dip recession.

“I don’t think it will,” he said.

In Asia, trends show a moderate improvement in export demand, he said.

“There will be a risk if they export goods to small businesses in the United States, for example,
due to weakened demand. But if you’re supplying goods to large businesses in Europe or America, then this is going to be a positive environment for growth allowing manufacturing to continuously grow,”
he said.

The Euro crisis would not greatly affect the Indonesian economy, he said.

“We expect Indonesian growth will reach 6 percent this year and next year, reflecting more positive global demand,” he added.

Indonesia, he said, didn’t suffer too badly during the Euro crisis due to strong domestic demand.

“Unlike Singapore and Hong Kong, Indonesia doesn’t have a high dependence on exports to Europe that is a risk. But if the crisis in Europe gets larger and larger, we will see risk premiums rising. Perhaps the banking system will be a bit more reluctant to lend to Europeans and the American money markets. There will be more problems for Indonesia,” he said.

He said the rising risk premium would affect Indonesian risks, but it was unfair because Indonesia has very good economic fundamentals at the moment.

Problems in Europe which affect international markets will affect Indonesia, because it is perceived as a high-risk economy and because Indonesian companies depend on international funding markets, he said. (ebf)