When it comes down to it, the central banks will find a way to keep the financial system afloat and economies from slipping into recession. As we saw this morning, the news from Draghi (ECB) is: we have tons of cheap euros - come and get it.
- 25 bp rate drop
- Ease collateral criteria for loans to banks
- 3-year loans to banks (even the Fed didn't provide direct 3-year loans to banks in 08)
With that in mind, it makes sense that Barclays does not see a global double dip recession. They definitely see a slowdown in the "developed" nations, but no negative GDP. Their view is that emerging markets will continue on the current growth path.
Given the sovereign crisis and a slowdown in emerging markets, the only way one can come to grips with this forecast is through conviction that central banks globally will continue to be extremely accommodating. The chart below shows the growth trends in central banks' balance sheets.
Having said this, significant risks remain that EU leaders will make such a mess out of the euro-zone crisis, that even the central banks' accommodating policies may not be enough.