Will there be a double-dip recession?

The Independent wrote a commentary on Sunday on the likelihood of a double-dip recession.

This proved to be a pertinent question, as today the OECD have released a report describing the increased risk of, and signs that we are already in – a second recession.

The OECD have looked negatively on Irish GDP and growth hopes. They have more than halved Ireland’s growth prospects.

The Euro debt crisis has been building since 2007 according to the Independent. The debt crisis recently seems to be growing regardless of the political decisions that were and are being made. Ireland’s misery’s now belong it seems to a far-off past.

Greece, Ireland and Portugal were the first countries that had to deal with the initial wave of the crisis. These 3 countries have relatively small economies compared with the economies of Italy and Spain. Right now the debt crisis is even knocking at the doors of Italy and Spain.

If the governments of Italy and Spain don’t manage well their part of the European debt crisis, the euro project could be damaged. Countries in the Euro Zone may even have to change their currencies.

Italy is an important global exporter. Italy’s economy is about €2 trillion which is 6 times the economy of Greece. Most of Italy’s debt is funded by its own citizens and by international investors.1

Italy’s unemployment numbers look similar to those in Spain. Spain has 21% unemployment and 45% unemployment for people under 25 years old. The Italian public system protects people who have worked for a long time. This in turn creates high unemployment for young people and an inefficient system.

Italy has an estimated 20% black market. So about 20% of the Italian economy is done by people who don’t pay any taxes. Italian politicians blame the black market for their inability to find enough money to pay the interest on the their debts. At the moment, the Italian government is not able to borrow money from private investors at an yield of less than 7%.

Given the European economic context, a double-dip recession is almost inevitable. Europe is in need for a miracle. From where will this miracle come from? Germany’s industrial production doesn’t seem to be the answer.

Photo by infomatique