Here comes the double-dip

After sliding again last week, markets have remained nervous over the past few days. The MSCI World Equity Index hit a nine-month low on Monday, while America's S&P 500 index is near a seven-month low; it is down by almost 15% from its recent high. Copper, a widely watched leading indicator for the global economy, has fallen to an eight-month low. The euro is at a four-year low and gold has hit new highs in sterling, euros and dollars.

The pound wobbled too after ratings agency Fitch reminded the markets that Britain faced a "formidable" fiscal challenge and needed to speed up its deficit reduction plans from the path sketched out in the last budget.The government is already preparing cuts to be implemented more rapidly.

What the commentators said

Jittery markets are signalling that "there is going to be a double dip", said Hamish McRae in The Independent. Growth is set to turn down in Europe. The "meltdown in confidence" over Greek debt has made it clear to governments that they can't wait until growth is powering ahead before starting on the "fiscal clean-up".

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Even Germany is now outlining plans to cut borrowings. And over the next year, it's hard to see the private sector compensating for the demand withdrawn by the public sector, especially given higher taxes. The markets' gloom over the eurozone is already beginning to affect business and consumer confidence in Europe, said Capital Economics. Once austerity measures kick in, confidence will fall further, "leading the economic recovery to fade".

Nor are things looking too good in the US. The soft labour market is one sign of soft underlying demand, while another is that the appetite for mortgage loans has slipped to a 13-year low, said David Rosenberg of Gluskin Sheff. Bank lending continues to shrink.

And now the ECRI Index of leading indicators, which tracks various gauges of the health of the economy, is at a one-year low and heading in the wrong direction "at a record rate". As the "fiscal largesse" that's been passing through the system dwindles, the economy is going to shrink again. And as we head into a double-dip, said Albert Edwards of Socit Gnrale, the stockmarket downtrend will resume.