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Rising recession risk

Friday, June 22, 2012 - 02:38

June 22- Fear of a global recession picked up pace as countries around the globe report weak economic data and Moody's downgrades 15 of the world's biggest banks. Jill Bennett reports.

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The red flags were flying this week: weak economic reports out of the euro zone and Asia and the U.S., a G20 meeting in Mexico that did not produce a coherent recovery plan, and to top it all off: Moody's Investors Service chopped the ratings of 15 of the world's biggest banks, including five top U.S. banks. You would think we were on the precipice of a global decline. John Eade, President, Argus Research: SOUNDBITE: JOHN EADE, PRESIDENT, ARGUS RESEARCH (ENGLISH) SAYING: "I think the risk is there for a global recession. I don't think there have been any specific developments this week that have changed anything. I think there is such a focus on Europe and the sovereign debt problems and the austerity programs. Europe is likely to be in a recession now for I'd say at least a year or two. We are going to have to live with that." Many feared the bank downgrades could trigger even more market turmoil and further economic woes, with tighter credit limiting expansion and jobs creation. But by Friday morning, those fears had dwindled. Though there is still concern. Fred Cannon, director of research at Keefe, Bruyette & Woods: SOUNDBITE: FRED CANNON, DIRECTOR OF RESEARCH, KEEFE, BRUYETTE & WOODS (ENGLISH) SAYING: "We are still in a world of deep uncertainty globally. There's a lot of concerns about the biggest global banks and that's not just in the U.S. that's throughout the world." But the real impact of the bank downgrades will likely be more local. SOUNDBITE: FRED CANNON, DIRECTOR OF RESEARCH, KEEFE, BRUYETTE & WOODS (ENGLISH) SAYING: "Ultimately we need healthy banks to have a healthy economy. That said I think that this issue that Moody's is raising is primarily an earnings issue for the banks more than it is an issue for the economy. Right now the banks have a lot of capital. There are no major risks in the U.S. especially with our domestic banks." And Europe's problems are big, but the contagion effect may be limited. SOUNDBITE: JOHN EADE, PRESIDENT, ARGUS RESEARCH (ENGLISH) SAYING: "Europe is about 27-28 percent of the global economy and so a big chunk of the global economy is now in recession. The U.S. has ticked a little lower in the first quarter from a strong fourth quarter but not in recession, and we're not forecasting a recession in the U.S., when you couple that with China, with growth that we are seeing in Brazil and Latin America, and it should be enough to keep the global economy still growing." Uncertainty still prevails, but there is a good chance we are not about to tip over the fiscal cliff. Jill Bennett, Reuters

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Rising recession risk

Friday, June 22, 2012 - 02:38