Sunday, March 23, 2008

Lehman sees risk of double-dip U.S. recession

Lehman sees risk of double-dip U.S. recession

NEW YORK, March 20 (Reuters) - Investors already coming to grips with the prospect of a looming U.S. recession face the even bleaker notion of a "double-dip" economic downturn, U.S. investment bank Lehman Brothers (LEH.N: Quote, Profile, Research) said on Thursday.

The persistent slump in housing will continue to drag on consumers and growth while tight credit conditions, a weakening job market and record energy costs are also taking a toll on the economy, according to economists at the bank.

Double-dip recession last hit the United States in the early 1980s and sent Japan's economy reeling for much of the 1990s.

Lehman economists predicted the U.S. economy will contract 0.5 percent in the first quarter and 1.0 percent in the second quarter, followed by a rebound in the second half. "We expect a feeble recovery in 2009, with the economy threatening to fall back into recession," Lehman economists Michelle Meyer and Ethan Harris wrote in a research report.

The Federal Reserve's interest rate-cutting campaign and the $150 billion federal stimulus package should limit the expected economic contraction, but they "will unlikely be sufficient to prevent recession," they said.

While such a dire scenario is still a minority view, Paul McCulley, managing director at PIMCO, which runs the biggest U.S. bond fund, said on CNBC television on Thursday the possibility of a double-dip U.S. recession is "real."

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