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The Perfect Storm…… November 29, 2009

Posted by fredpereira in Uncategorized.

……..called Global Recession
DEPRIVE a person of oxygen and he will turn blue, collapse and eventually die. Is this was is happening globally a consolidated report.
Is there an increasing probability that the global economy – not just the US – will experience a serious and protracted re-recession. Marco developments in the last year suggested that now all of the G7 economies (US, UK, Japan, Germany, France, Italy and Canada) are already in a recession. Other advance economies or emerging markets (Eurozone including Spain, Ireland and other Euro members; New Zealand, Iceland, Estonia, Latvia and some other South-East economies) are sailing in the same boat.
Hence this group of twenty plus economies entered into recession hampering the growth and slowdown in the BRICs (Brazil, Russia, India and China) and other emerging market economies. IMF defines a global recession as a global growth rate below 2.5% compared to emerging market economies which as much faster (6%) than advanced economies which averages about 2%. China for e.g. though the growth rate is 10%+ there has been thousands of riots and protest – 15 million rural farmers needed to be moved to modern urban industrial sector with higher wages, just to maintain the legitimacy of its regime; so for China growth rate of 6% would be equivalent to a recessionary hard landing. It now looks that by the end of 2008 and 2009 the global economy entered recession which still lingers on, will 2010 see the global economy re-enter a recession?
Is US cherry-picking stats, because the facts do not match which is interesting. The current global recession is failing to ebb. This can be seen from the US unemployment statistics, which indicated 6.63 lakh job loss in March 2009, hence taking the unemployment ratio to 8.5%. US Labor Department has also revised January data to show job losses of 7.41 lakh from the earlier 6.55 lakh.
Unlike USA in India due to unemployment statistics, it is difficult to assess the gravity of the situation. Still, global recession continues to inflict further damages to the Indian economy. While the incidence of unemployment and underemployment is more serious perennially, the adverse impact of the current crises on the Indian situation appears much less as compared to US, except the export sector in Indian economy which is hit the most.
Indian Engineering sector, with a job loss of 4 lakh, 75,000 persons across India are jobless due to global downturn in the automobile sector, Builders Association of India has quoted about 2.5 lakh construction workers affected by the slowdown, not to forget labours returning from the Gulf countries, which is likely to worsen the appalling state of the construction workers.
However offering some respite from the current recession is ICRA’s claim that India’s total exports will pick up in the second half of Financial year 2009-10, with a growth ration of 9% in the third and fourth quarter of 2010.
But despite all this companies like Infosys went ahead with the job offers given to 18,000 odd, Tata Consultancy Services, 250 freshers for the global development centre in Cincinnati, Direct-to-home, Big TV with 15,000 installation and technical professional as part of the after sales service infrastructure, Videocon with 4000 new recruits. But again with monsoons not good, farmers in the Rural sector seem to suffer, thus making room for essential commodities prices to rise even higher.
Call it India’s optimism amidst the global gloom, the Union Cabinet approval on the National Policy on Skill Development on 23 February 2009. Under this Mission, the government intends to train 1 million persons in the next five years and then a million every year.
The policy proposed by the Ministry of Labour and Employment, aims at creating a workforce with improved skills, knowledge and internationally recognised qualifications to gain access to ensure India’s competitiveness in the dynamic global labour market. This emphasis of pre-employment training and life long learning. The policy also seeks adequate participation of women, disabled persons and disadvantaged groups including economically backward and minorities.
IMF was slow to apply the word ”recession” in the current global downturn. Past IMF chief have called global growth lower than 3% but Oliver Blanchard the IMF current chief, who on Oct 08 2008 said ” it is not useful to used the word ‘recession’ when the world is growing at 3%.
IMF forcasted that 2009 would see a 3% growth globally, but instead it was 1.3% contraction for this year (being the most lousy year for forecasters globally). But that doesn’t hide the fact that this is the fourth global recession since World War II, and deepest by a long shot. Earlier recessions were 1975, 1982 and 1991, all lasted for a year, when measured by purchasing power parity, which the IMF favors for global comparisons. Take into account the different cost of goods and services in different countries — for instance, a haircut costs a lost less in Beijing than Boston. Looking at global GDP by the more traditional method using exchange rates, the 1991 recession lasted until 1993.
2009 estimated per-capita GDP decline 2.5%, using purchasing power parity, compared to 0.4% contraction, on average, during the three previous recession, Industrial Production, trade, capital flows and oil consumption in 2009 recession fell much more sharply than in the previous global recessions, not forgetting unemployment’s which is increasing rapidly.
What about 2010? IMF’s current forecast estimates a small per-capita GDP decline, when measured by market exchange rates, and a tiny increase when measured by purchasing power parity. Either of those measures — the IMF didn’t release forecast for the other macroeconomic indicators it used in this exercise — the world will be hovering around recessionary territory next year too, we will have to wait and watch.



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