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Double-dip recession: Could it be a 'sell-fulfilling' prophecy?

A nosedive in stock prices doesn't mean a double-dip recession is inevitable. But investor sell-off could hurt an already weak economy by dampening consumer and business spirits.

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Passersby are reflected at an index board inside the Athens stock exchange, August 9. The global economy stumbled deeper into crisis as stock markets slumped further on Wednesday, with investors losing confidence that the United States and Europe can rein in their debt burdens quickly and avert a double-dip recession.

Yiorgos Karahalis / Reuters

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Financial markets took another rough ride Wednesday, amplifying concerns that the US economy could be embarking on a "double dip" back into recession.

Policy signals from the Federal Reserve had helped to ease investor fears a day earlier. But by late Wednesday, the Dow Jones Industrial Average was down over 350 points for the day, moving below the 11,000 level.

Although several factors have set investors on edge, the most basic is concern about whether the economy will grow or veer into another recession. The answer will have big implications for American jobs and incomes, as well as corporate share prices.

So is a double dip arriving?

It's very hard to tell, especially considering the tepid pace of recent economic growth. Forecasters have a far-from-perfect track record in seeing turning points, and distinguishing a temporary slowdown from a slide into recession.

What's clear, though, is that forecasters see a higher risk of recession than they did just a couple of months ago. Many say the risk is substantial – a 25 to 50 percent chance.

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