Recession now inevitable says RBS

23rd September 2011

RBS chief economist Jacques Cailloux says a recession is impossible to avoid. Much of his argument is based on the European Purchasing Managers Index.

FTAlphaville quotes the note sent by the bank in some detail this morning. It says: "We are revising down again our economic forecasts thereafter and now expect a full blown recession. The September composite PMI fell to 49.2, its weakest since July 2009 (and first sub-50 reading since then too). At this level, the PMI is consistent with a 0.1% contraction in GDP on a 3m/3m basis and both forward looking elements of the survey and ongoing financial market developments imply further weakening ahead. The manufacturing PMI was 48.4 – the weakest since August 2009 – while the services PMI was 49.1 – the weakest since July 2009.22."

Cailloux also predicts a European Central Bank interest cut by October or November and perhaps some unconventional measures such as covered bond purchases.

Here Bloomberg carries a video interview with Cailloux on the Washington Post/Bloomberg site.

The Vancouver Sun reports on the visit of the British Prime Minister David Cameron to Canada. He told Canadian MPs: "We're not quite staring down the barrel. But the pattern is clear. The recovery out of the recession for the advanced economies will be difficult. Growth in Europe has stalled. Growth in America has stalled.

"The effects of the Japanese earthquake, high oil and food prices have created a drag on growth, but fundamentally, we are still suffering from the aftershocks of the world financial bust and economic collapse in 2008.

"That means families in Britain and Canada are facing a tough time."

Forbes quotes World Bank President Robert Zoellick saying: "I still think a double-dip recession for the world's major economies is unlikely, but my confidence in that belief is being eroded daily."

That is one of a number of statements to emerge from yesterday's meeting of the G20 finance leaders.

The overall statement said: "We are taking strong actions to maintain financial stability, restore confidence and support growth. We commit to take all actions to preserve the stability of banking systems and financial markets as required."

Brazil, China, India, Russia and South Africa said in a statement that they would "consider, if necessary, providing support through the IMF or other international financial institutions".

Markets were a little steadier this morning, having lost billions worldwide yesterday and this week.

But the Sydney Morning Herald remarks that the crisis could see markets fall further.

Columnist Malcolm Maiden writes: "The nightmare scenario is that Greece is allowed to default, and European lawmakers and regulators then lose control of the situation.

"This market is still 25 per cent above its March 2009 global crisis low. An uncontrolled European bond market selloff on top of the all the other negative indicators would retest that crisis nadir."

More from Mindful Money: 

Market crash: The secret to investment timing

Market crash: Headlining and tweeting our way to volatility

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