The probability is growing that the global economy - not just the US - will experience a serious recession. Recent developments suggest that all G7 economies are already in recession or close to tipping into one. Other advanced economies or emerging markets (the rest of the eurozone; New Zealand, Iceland, Estonia, Latvia, and some Southeast European economies) are also nearing a recessionary hard landing. When they reach it, there will be a sharp slowdown in the BRICs (Brazil, Russia, India, and China) and other emerging markets.
This looming global recession is being fed by several factors: The collapse of housing bubbles in the US, UK, Spain, Ireland and other euro-zone members; punctured credit bubbles where money and credit was too easy for too long; the severe credit and liquidity crunch following the US mortgage crisis; the negative wealth and investment effects of falling stock markets (already down by more than 20 per cent globally); the global effects via trade links of the recession in the US (which still counts for about 30 per cent of global GDP); the US dollar's weakness, which reduces American trading partners' competitiveness; and the stagflationary effects of high oil and commodity prices, which are forcing central banks to increase interest rates to fight inflation at a time when there are severe downside risks to growth and financial stability.
Official data suggest that the US economy entered into a recession in the first quarter of this year. The economy rebounded - in a double-dip, W-shaped recession - in the second quarter, boosted by the temporary effects on consumption of $100 billion (€68 billion) in tax rebates. But those effects will fade by late summer.