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
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Showing posts with label My Articles. Show all posts
5 factors that could hurt an economic recovery
So much for the green shoots, many economists are now betting on a quick economic recovery and new bull markets in the bourses. Amidst all the green shoots let us examine a few factors that could possibly end up being a factor that affects the recovery.
1.The Oil spike
Crude oil has been surging ever since the talks of economic recovery started doing rounds. Expectations that China will continue to grow at a faster pace and emerging economies will get back to growing ways have lead to the notion that demand for oil will be high. OPEC recently announced that worst of oil crisis may be behind us and expects demand for oil to stabilize and tick up in coming years. Goldman Sachs revised higher its year end target for oil. Also the falling dollar has supported the oil prices. Any further spike in oil prices could end up hurting the prospects of an quick economic recovery.
2. The Swine flu pandemic
WHO raised the flu alert level to six, making it first global pandemic in four decades. Influenza virus typically spread in waves getting stronger with each wave. The second wave that seems to have started has already spread its wings across many nations including India. The World Bank estimated in 2008 that a flu pandemic could cost a damage of $3 trillion to the world trade. Although the swine flu has caused relatively less mortality, any further severity might be a dampener to world trade.
3. Political unrest
Defiant North Korea announced that it will continue to enrich its nuclear capabilities and reportedly is readying itself for a 3rd missile test in spite of UN sanctions and warnings from USA, raising tensions in the region. N Korea has also threatened war if further sanctions were imposed on them. A war is last thing that the world would like to see amidst the financial crisis. In the Middle East, if tensions between Israel and Iran escalate, that would send oil prices soaring again.
4. Rampant inflation
Although not a near term issue, if the economic recovery turns out to be strong and with higher oil prices and monetary easing from central banks around the world, inflation could begin to sky rocket. Higher inflation with stagnant growth will lead to "Stagflation" a period of slow growth with high inflationary pressures.
5. Public debts
Another crisis that looms near the horizon is enormous public debts. Governments around the world borrowed huge amounts of money to steer through the worst financial crisis since the 1930's. It was necessary to save the economy from falling into a deeper hole and to bail out large banks. But in the long run, such enormous debts are unsustainable, already there are worries that some Euro zone nations could default their debts or lose their credit ratings. Unsustainable debts are a cause of worry and needs to be tackled sooner or later.
Prakash
1.The Oil spike
Crude oil has been surging ever since the talks of economic recovery started doing rounds. Expectations that China will continue to grow at a faster pace and emerging economies will get back to growing ways have lead to the notion that demand for oil will be high. OPEC recently announced that worst of oil crisis may be behind us and expects demand for oil to stabilize and tick up in coming years. Goldman Sachs revised higher its year end target for oil. Also the falling dollar has supported the oil prices. Any further spike in oil prices could end up hurting the prospects of an quick economic recovery.
2. The Swine flu pandemic
WHO raised the flu alert level to six, making it first global pandemic in four decades. Influenza virus typically spread in waves getting stronger with each wave. The second wave that seems to have started has already spread its wings across many nations including India. The World Bank estimated in 2008 that a flu pandemic could cost a damage of $3 trillion to the world trade. Although the swine flu has caused relatively less mortality, any further severity might be a dampener to world trade.
3. Political unrest
Defiant North Korea announced that it will continue to enrich its nuclear capabilities and reportedly is readying itself for a 3rd missile test in spite of UN sanctions and warnings from USA, raising tensions in the region. N Korea has also threatened war if further sanctions were imposed on them. A war is last thing that the world would like to see amidst the financial crisis. In the Middle East, if tensions between Israel and Iran escalate, that would send oil prices soaring again.
4. Rampant inflation
Although not a near term issue, if the economic recovery turns out to be strong and with higher oil prices and monetary easing from central banks around the world, inflation could begin to sky rocket. Higher inflation with stagnant growth will lead to "Stagflation" a period of slow growth with high inflationary pressures.
5. Public debts
Another crisis that looms near the horizon is enormous public debts. Governments around the world borrowed huge amounts of money to steer through the worst financial crisis since the 1930's. It was necessary to save the economy from falling into a deeper hole and to bail out large banks. But in the long run, such enormous debts are unsustainable, already there are worries that some Euro zone nations could default their debts or lose their credit ratings. Unsustainable debts are a cause of worry and needs to be tackled sooner or later.
Prakash
