The tortoise might win the race, but only if it doesn't get hit by a semi.
Despite the sharp rebound in the markets during the past couple of years, economic growth will continue to be slow and be vulnerable to a double-dip recession, David Wyss, chief economist at Standard & Poor's, told advisors at the Financial Planning Association's Spring Forum conference in Manhattan on Thursday.
Wyss said the disharmonic convergence of a gasoline shock brought on by Middle East political turmoil, the ongoing Greek debt crisis,missteps by U.S. lawmakers, and a knee-jerk cycle of panic by consumers could create a cauldron of trouble that could set off another market swoon. Though he didn't predict a double dip outright, Wyss stressed that the recovery remains fragile enough where any number of things could upset it.
Wyss said an outsized spike in oil prices to say, $150,could squeeze purchasing power and shut down consumers.
And in Washington, he said, there's room for mayhem from several different quarters including an irresponsible budget that raises taxes too much or withdraws fiscal stimulus too quickly, a failure to raise the debt ceiling, or a default on the national debt. "Any of these things could easily cause the financial markets to freeze up and increase the cost of debt and cause a recession."
Finally, he said, there's Europe. As the debt crisis continues to unfold there could be failures of the major institutions in what he calls the Olive Belt countries. German and French banks have massive loan exposures to these countries, Wyss said. "If they go under, there are ripples throughout the rest of the European financial markets."
The good news is that all the economic growth projection numbers for the U.S. have plus signs in front of them, Wyss said. "The bad news is the numbers are small." And he thinks that will be the trend for the next couple of years. "We're at a half-speed recovery. A slow recovery tends to be a fragile recovery. It doesn't take much to derail it and send us back out into recession again."
Wyss blames the slow recovery on the nature of the recession, which came about in large part because of a large accumulation of debt, excessive borrowing and the inflated asset values that resulted.
"Recessions that occur because of this debt-inflation phenomenon are harder and longer to get out of than other recessions," Wyss said. He added that consumers drove previous economic recoveries. "And they did it the good old American way-by living beyond our means. It's harder to do this time."
Wyss noted that savings rates going into the recession were 2.1%, while debt was 135% of household income. "If you have to save more and borrow less, you can't spend as much," he said.