by Calculated Risk on 5/23/2009 09:12:00 AM

From The Times: Professor Robert Shiller warns Britain may suffer a double recession

One of the world's most influential economists warns today that Britain faces the prospect of two recessions in quick succession.

Robert Shiller, Professor of Economics at Yale University, said that the recent stock market bounce should be treated with caution.
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The apparent upturn could soon go into reverse, he told The Times, marking a repeat of economic patterns in the 1930s and the 1980s. Such a double-dip slowdown has been nicknamed by economists a “W-shaped” recession, where recovery is so fragile, the country could be plunged into another slowdown as soon as it emerged from the last.
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Last week Alistair Darling, the Chancellor, brushed aside doubts that his Budget forecasts had been overoptimistic and predicted that the recession would be over by Christmas. Many economists in the City believe that Britain will stagnate until the end of 2010 and that unemployment will continue to rise well after that.

... he warned that “there is a real possiblity of another recession. We may well see more bad news. It is a real failure of the imagination to think otherwise.”

He said that there were a number of issues that threatened any long-term recovery for the British economy - rising unemployment, mortgage defaults, and another wave of new company failures that “could surprise us yet”.

Professor Shiller also said that the banks were still harbouring large portfolios of troubled assets.
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He added: “In 1931 in the US, President Hoover unveiled his recovery plan - there was a huge stock market rally — the market improved but it didn't hold because bad news kept coming in. Increased confidence can be a self-fulfilling prophecy but it doesn't always hold.”

Professor Shiller said, however, that he believed another likely scenario to be one where Britain would face a continuous decline with house prices falling for a number of years, drawing comparisons with the decade of misery in Japan in the 1990s.

Shiller is talking about the British economy, but the U.S. economy has many of the same problems.