Fears intensified on Tuesday that the US was heading for a double dip recession that could reverberate around the world after figures showed US home sales slumped twice as fast as expected last month to a 15-year low.
The Dow Jones Industrial Average fell through the psychologically important 10,000 level in intraday trade and London exchange was also down sharply as global markets were rattled by news that sales of previously owned US homes dropped by a record 27 percent last month.
Oil prices went into reverse and commodities declined as traders digested the news that the world’s largest economy was a long way from recovery and could slip back into recession.
PHOTO: EPA
The gloomy numbers intensified worries in the UK that it could be headed for its own double dip after a stark warning to that effect from a Bank of England policymaker.
In the latest of a slew of downbeat reports on the US economy, the National Association of Realtors said sales fell to an annual rate of 3.83 million, the lowest level since May 1995. The pace of sales in June was also revised lower.
Last month’s drop dwarfed predictions of a 13 percent fall in sales expected following the withdrawal of a housebuying tax credit introduced last year to boost sales.
Analysts said they would look closely at a speech later this week by US Federal Reserve Chairman Ben Bernanke, who is expected to comment on prospects for the economy and the need for further government action to stimulate growth.
Pressure on the administration of US President Barack Obama to adopt further measures to boost the economy are expected to intensify in the run-up to mid-term congressional elections in November.
Ireland, Portugal and Spain also saw their borrowing costs jump.
Martin Weale, the most recent government appointee to the Bank of England monetary policy committee, said in an interview with the Times that there was a risk of a double dip recession in the UK.
He said the weakness of the recovery meant the economy could falter and anyone who ruled out the possibility of another economic contraction was “foolish.”
Austerity measures will be outlined by the coalition government after the comprehensive spending review in October, which will outline how ministers plan to cut between 25 percent and 40 percent from government spending over the next five years.
Concerns that Europe will follow the US back into recession also gained ground after Greek bond yields, which govern the interest rate paid by the government on its borrowing, spiralled to 11.3 percent.
US economist Joseph Stiglitz said European governments were manufacturing a return to recession with cuts in areas that would spur recovery. He said a determination to limit government borrowing to 3 percent of national income was “bizarre.”
“Cutting back willy-nilly on high-return investments just to make the picture of the deficit look better is really foolish,” the Columbia University professor told Irish radio.
“Because so many in Europe are focusing on the 3 percent artificial number, which has no reality and is just looking at one side of a balance sheet, Europe is at risk of going into a double dip,” Stiglitz said.
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