Recession:
The commonly accepted definition of a recession is two successive quarters of falling GDP.
What are the comments on this:
1.IMF - The International Monetary Fund (IMF) says the US economy may shrink 0.7 percent by the end of the fourth quarter of 2008, while growth in other centers of capitalism such as Europe, Japan and Canada would substantially slow down to 0.9, 1.4 and 1.3 percent, respectively.
On the whole, the IMF now sees a 25-percent chance of global economic growth slowing to 3 percent or less in 2008 and 2009, which according to the multilateral agency is equivalent to a global recession.
2. Paul Krugman tells us to get ready for the mother of all currency crises.
"I’ve been reading reports from Stephen Jen, a former student of mine who’s now the chief currency strategist at Morgan Stanley. He points out that since the fall of Lehman, we’ve been seeing clear signs of currency crises throughout the world of emerging markets, including Eastern Europe. This time, it’s not an Asian crisis or a Latin American crisis, it’s a global crisis."
3. Dani Rodrik says we are close to the next stage of the crisis.
"One can make a decent argument that the financial crisis has bottomed out in the advanced countries (with the real-economy consequences still to come of course). But it is barely starting in the emerging markets, and it could get much, much worse."
4. The Economist believes emerging markets are flying into the storm."Even as talk mounted of the rich world suffering its worst financial collapse since the Depression, emerging economies seemed a long way from the centre of the storm.
5. Prime Minister Manmohan Singh said while India must be prepared for a temporary slowdown due to the global financial crisis, the economy and banking system were safe.
6. The Indian government's fiscal deficit in the 2008/09 fiscal year may exceed the budget target of 2.5 percent of gross domestic product, Finance Minister Palaniappan Chidambaram said. The global slowdown will have an indirect effect on the Indian economy, Finance Minister Palaniappan Chidambaram told reporters on Friday.
7. Assocham in a survey said the layoffs would be in seven key industrial segments — steel, cement, IT-enabled services/BPO, financial and brokerage services, construction, real estate and aviation. Assocham president Sajjan Jindal said HR heads of a majority of companies in the badly-affected segments had drawn up "conclusive plans" to curtail workforce by 25-30%, "announcements for which is likely in next 10 days or so."
8. Nobel laureate and eminent economist Amartya Sen - “I believe we are in a recession already not that we are getting there. It could become deep if nothing is done about it. I am sure something will be done about it and we should be able to make it a fairly shallow recession and turn it around,”
9. "A harsh storm seen only once in 100 years is raging," Japanese Prime Minister Taro Aso told a news conference.
---
Right now what is happening across the globe:
US & EU in recession: This week, US Department of Commerce announced figures according to which Americans have cut expenditures dramatically for the last years. In Q3, the US GDP reduced by 0.3% marking the biggest decline for the last ten years. From July to September, the consumption fell by 3.1%, marking the first outright decline in 17 years. The disposable income of US population (the money left after paying taxes and credits) fell by 8.7%. Business investment fell by 5.5%, dragged down by the weakness of demand and higher borrowing costs. However, there were still one or two sources of strength in the third quarter. So, in Q3 exports increased by 5.9% and investment in commercial real estate increased by 7.9%. These will also be the next shoes to drop, Ashworth said. Analysts of Capital Economics say US economy will endure deep and long lasting recession. Recovery does finally take place, but they expect it to be lackluster at best.
Economic tsunami surges east: Like the United States, the Chinese economy has also been troubled by a sudden sales lull of housings. In Beijing and other cities, more property developers have stopped building apartment buildings, leaving many cranes and construction sites unattended.
What are the positives in this recession in India:
Due to the crisis, GDP should fall which will drag the commodity prices including the crude/steel etc., due to the demand destruction, further leads to fall in Inflation / deflation (Of course in case government fails to provide proper liquid conditions then the production too fall and will lead to higher inflation).
What are the negatives:
No need to describe, every body talking about it.
How to survive a county from the CRISIS?
This is the billion dollar question; I think it is the trillion dollar question :)
Here when we restrict to the basics, then every government will have two options broadly.
1. Liquid side
2. Fundamental side
Liquid side means governments will force their central banks to cut the rates, which is the first sign for accepting the GLOBAL RECESSION. Every central bank had the options due to the fall in inflation. This will lead to almost zero interest regimes.
But, these efforts are only for short term measure to provide the proper liquidity in the system. These measures can not solve the problem but a relief to the system for time being.
So, every government should look in to the fundamental side, in this case they have two options like REDUCING THE EXPENDITURE and Improving the INVESTMENTS. Due to crisis investments may not be come as easy as we (In India) got from last decade.
So, government has been forced to cut their expenses. There is no other option to them, then what our government is doing right now. Is it is taking proper steps to solve this problem. Unfortunately answer is NO.
Instead of cutting the expenses, government is increasing its expenditure due to the upcoming election. They are freely deploying the money in to the market like the “farmer loan wavier program” costing the government 60,000cr and accepting the sixth pay commission report which further burdens 40000cr etc., Which leads to the current account deficit of 2.4% of GDP and a fiscal deficit of 3.1% of GDP.
Poor reaction to the CRISIS by the Indian government. God can only save the India from these politicians. No need to go for the bottom fishing right now.
What is going to happen in India:
RBI cutting the rates as usual, but the government will not controlling its expenses means there is a huge dangerous affect behind our economy. Very closely we should watch for the events especially at home.
Whether FIIs prefer India when compared with emerging markets?
No, because China is having surplus budget whereas India is having 5.5% deficit then why they will prefer India when both are going with 12 price multiple right now?
---
With thanks
Be and make
No comments:
Post a Comment