Europe At Risk Of Double-Dip

Last week, we blogged about the potential for Canada to “double-dip”. And although the term brings about pleasant visions of french fries and ketchup or perhaps ice cream and chocolate syrup (depending on what you’re in the mood for), double-dipping actually refers to a quick return to a recession. Not so appetizing, huh?

Thankfully, reports indicate that Canada’s chances of experiencing the dreaded double-dip (defined as falling back into a recession within two years of one ending) are slim to none. According to QMI Agency’s Stefania Moretti, however, Europe may not be so lucky. In a report published earlier today, she notes that while the world economy is forecast to grow by 3.5% this year, Europe’s growth sits at 1.1%.

Based on the Conference Board of Canada’s latest World Outlook, it appears as if Europe’s debt problems remain among the worst in the world following the recession of yesteryear. According to the board’s principal research associate, Kip Beckman, “Europe’s a drag on the economy, there’s no question about it.”

The world, as a whole, however, shouldn’t be held back too badly, says Moretti. The Asia-Pacific region and Latin America are helping out by showing strong signs of economic growth. Similar to Canada, these regions avoided high-risk investments like mortgage-backed securities.

The Asia-Pacific region, specifically, is predicted to have its real gross domestic product spike by 6% this year. And although China’s growth is expected to taper off at some point, the government has taken steps to avoid another crash into financial turmoil. In Latin America, GDP is set to grow by 4.5%, according to the report.

Europe’s debt problem, on the other hand, remains a concern. Explains Moretti: “Inventory restocking and fiscal stimulus have been keeping the region afloat but with both of these supports fading, many countries in Europe have little choice but to further slash spending to reduce huge deficits. Investors have steered clear of European financials in recent months over concern of exposure to sovereign debt.”

In the United States, there are also been concern that a double-dip may occur. The Conference Board doesn’t see that happening though. Growth in the U.S. is slower – at about 2.5% – but strong capital investment and stimulus spending could keep the nation out of the red.

Canada is poised to have its economy grow by 3.6% in 2010, potentially slowing to about 2.9% next year. It is well documented, however, that Canada has been a world leader in rebounding from the global financial crisis. So unless you’re talking about a tasty treat, no double-dip is expected in the country.