Green shoots or Yellow Weeds ?

The US unemployment report released on Thursday last week has raised doubts on the hopes of a quick economic recovery in the developed world, US Job market continues to be extremely weak with Job losses at over 460,000 in June. The Unemployment rate has hit 9.5%, US government expects it to reach 10% in few months. Although Unemployment is considered to be a lagging Indicator it is hard to see how a recovery even if it comes will be sustainable with reduced consumer spending as unemployment will have a significant effect on consumer confidence & spending. The stress tests conducted earlier to check the health of lending Institutions and Banks had factored in unemployment rate of 10.3% as worst case scenario which now seems surpass able. Mean while the Unemployment rate in Europe zone has hit a 10 year high of 9.5% as well, ECB expects economic recovery only in mid 2010.

Not everyone agree to the “Green shoots” argument in the first place, Billionaire Investor Warren Buffet earlier in an interview said he is yet to see any green shoots and expects economic activity to be weak for some time to come. Noted Economist and Nobel Laureate Paul Krugman says that Obama Administration needs to work on getting the stimulus plan bigger to avoid a repeat of 1930’s type of scenario, He also adds that risk of deflation still looms. US Vice President Joe Biden admitted that they misread the state of the Economy when putting together the stimulus package.

The second half recovery as expected by optimists now seems to be an uncertain thing, some Economists even say a recovery when it comes will be very weak that with high unemployment rate it would still feel like a recession.

In a statement released earlier Indian finance ministry stated that there are signs of turnaround in Indian economy although exports continued to decline, it was also noted that the extent of recovery will depend on the revival of US economy. It is hard to get back to 8-9% growth with a weak export market. The Budget failed to impress the stock markets with indices falling over 5%. The stock markets and commodities were rallying on the hopes of an Economic recovery during the second half of the year, now with uncertainty over the turnaround, and a fundamental lagging behind it is likely that markets will be under pressure till there is a clear picture in the macroeconomic front.


Prakash , sharemarketidea@yahoo.com