Economist Lawrence Summers warns of double-dip recession
Joining a growing chorus of economists raising alarms about a double-dip recession, former top White House economic advisor Lawrence Summers said there’s at least a 33% chance the faltering U.S. economy will slip into another economic downturn.
Summers, who stepped down at the end of last year to return to Harvard University, also predicted that the unemployment rate would be above 8.5% at the end of next year. The rate was 9.2% in June, with July numbers coming Friday.
“With growth at less than 1% in the first half of this year, the economy is effectively at a stall and facing the prospects of shocks from a European financial crisis that is decidedly not under control, spikes in oil prices and declines in business and household confidence,” Summers wrote in an opinion article in Wednesday’s Washington Post. “The indicators suggest that the economy has at least a 1-in-3 chance of falling back into recession if nothing new is done to raise demand and spur growth.”
Summers’ projection is in line with those of other economists. Nariman Behravesh, chief economist at IHS Global Insight, last week put the odds of a double dip at 30% after the government reported dramatically slower growth in the first half of the year.
And Summers’ fellow Harvard economist Martin Feldstein told Bloomberg TV on Monday that the odds of another recession were 50%. Feldstein serves on the committee that officially dates business cycles for the nonprofit National Bureau of Economic Research.
White House officials have said they don’t think the economy will slip back into recession, which is technically defined as two consecutive quarters of negative growth. The economy grew at a rate of 0.4% in the first three months of the year and 1.3% from April through June. The severe recession that began in late 2007 ended in June 2009 when the economy began growing again, according to the bureau.
“We do not believe that there is a threat there of a double-dip recession,” White House Press Secretary Jay Carney said Wednesday. “We believe that the economy will continue to grow.”
Obama administration officials hoped the resolution of the recent debt ceiling crisis would remove additional uncertainty about the economy, but some analysts worry that the modest initial spending cuts in the deal will only worsen the slow growth.
Summers said the post-deal relief that “there will be no default; no economy-damaging short-run austerity” will be short-lived given the faltering economy.
“Soon, relief will give way to alarm about the United States’ economic future,” he wrote.
