Thursday, August 11, 2011

Recession 2.0 would hurt worse

The risk of double dip recession is rising.

And while economists disagree on just how likely the U.S. economy is to fall into another downturn, they generally agree on one thing -- a new recession would be worse than the last and very difficult to pull out of.

"Going back into recession now would be scary, because we don't have the resources or the will to respond, and our initial starting point is such a point of weakness," said Mark Zandi, chief economist at Moody's Analytics. "It won't feel like a new recession. It would likely feel like a depression."

Zandi said the recent sell-off in stocks have caused him to raise the odds of a new recession to 33% from 25% only 10 days ago.

Other economists surveyed by CNNMoney are also raising their recession risk estimates. The survey found an average chance of a new recession to be about 25%, up from a 15% chance only three months ago.

Of the 21 economists who responded to the survey, six have joined Zandi in increasing their estimates in just the last few days. The main reason: the huge slide in stocks. Standard & Poor's downgrade of the U.S. credit rating is another concern.

"The correction in equity markets raises the risk of recession due to the negative hit to wealth and confidence," said Sal Guatieri, senior economist for BMO Capital Markets. (more)