Talk Of 'Double-Dip' On Rise

(Dow Jones) Debate on the chances of double-dip recession in Europe, the U.S. and indeed the world as a whole has become somewhat louder in the past couple of weeks.

Once a tiny, dark, easily dismissed cloud on the horizon of what seemed a strong recovery, the prospect of another round of contraction now seems less remote by the hour.

It's still hardly anyone's central case, of course, but that cloud is larger and closer than it was which, surely, is unsettling enough.

The Royal Bank of Scotland is among the latest to give us its take; it says a "crude quantification" of the risks now priced in to global stock prices suggests a 30% chance of global double dip. One chance in three.

These are the highest odds since the world started to crawl out of the doldrums last year, the bank adds. Hmmm...

Moreover a survey released this week by Deloitte revealed that U.K.-based chief financial officers now see a 38% chance of double dip, up from 33% in the first quarter of the year. Deloitte said the results demonstrated the lowest level of confidence among CFOs for twelve months.

And so on and so on...

Now gloomy chatter of this sort is natural enough. Europe still struggles with sovereign debt woes and the economic numbers out of the U.S. have investors wondering whether there was anything more to last year's apparent bounce than all that economic stimulus.

But there's a new wrinkle now: State austerity.

Governments across Europe are jousting with electoral unpopularity to try and hack back their public sectors before the bond markets finally buckle.

Investors usually applaud this sort of thing, and this time has been little different. However, so deep will cuts have to be that the private sector is bound to face strong headwinds too, and that is naturally harder for equity markets to deal with.

To quote one recent example, U.K. cuts mean planned building work on some 700 schools will now not go ahead, including the construction of new ones. This will save the State some cash, but the private constructors who were eyeing the work are out in the cold. This is just one example, from one country; there are going to be lots more.

No wonder nerves are getting a little shredded. There remain bright spots, of course; you can still find plenty of analysts upbeat about corporate profits and, with so much cash on their books, one day U.S. boardrooms are going to start throwing it around again.

But even so it should be no surprise that the worst case scenarios of a few months back have moved a little closer to the middle of the road.