Since the collapse of Bear Stearns on March 16 2008, the world has been in a financial crisis, with the terms recession and depression freely doing the rounds. The only debate has been to its shape, whether this is a V, U, or W shaped (double dip). Whatever the prognosis, the situation is still volatile and would likely to remain so for some time to come.
Of a world GDP of approximately $ 57 Trillion, the US with 1$ 4.5 and the EU with $ 16.44 are the two most important players. The situation in the US is not very rosy where the unemployment figure is at 9.7% as per the Bureau of Labour Statistics. Added to that is the fact that GDP growth has been lower than expected for the 1st Quarter of 2010, while the fiscal deficient is in excess of 10% and US national debt is reaching 75%. To add to the woes the recent drop in the stock market reflects poor investor sentiment on account of lower than expected growth for the 2nd quarter.
The EU is also facing similar pressures and as per the European Economic Forecast - Spring 2010, the EU GDP growth will be depressed for the 1st three quarters of 2010. The employment rate is expected to fall by 1% this year, putting greater pressure in the unemployment rate. The fiscal deficient would be as high as 6.8% throughout the EU, and a debt to GDP ratio of 78.7%. The recent crisis in the EU over Greece may just be a play on future crisis yet to come from the UK, France, Spain and Italy.
Further hampering a climb out from the recession with deficit’s and debts reaching record levels; Governments do not have the stomach for more stimulus packages. The lack of political will for more stimulus packages is more due to the alarming rise of Dept to GDP. Greece with a debt of 115%, unemployment at 9.2% and deficit at 12% caused a global crisis. If seen in the light of the fact that Greece’s economy represents just 2% of the EU, economy, what are the dangers posed from a nation like Italy which has a debt of 115%, unemployment at 8% and an accepted fiscal deficit of 6% (some say a lot higher), and represents 12% of the EU GDP?
Consumer spending in the US shows very weak sentiment. Retail figures for May 2010 in the US show a 1.2% drop. New home sales for May 2010 have plunged 33%. Along with a drop in Auto Sales this represents a continued scenario of return to recessionary economics.
Another factor likely to affect the world economy in 2010-2011 is a potential crash in World Agricultural prices. As per the FAO the Food Price Index has consistently been falling from 174 in Jan 2010 to around 164 in May 2010. Although highly tentative the forecast of rice production alone is estimated to see an increase of more than 4% in 2010-2011.
The BRIC economies of Brazil, Russia, India and China represent about 8.6 Trillion GDP, or close to 16 % of the world GDP. An expected drop in agricultural prices may greatly impact the BRIC economies where close to 39% of the labour force and 10% of GDP is based on agriculture, unlike the developed economies where only about 0.7 % (US), 4% (EU) labour force is agriculture dependent. Drop in agricultural prices would affect the Chinese and Indian economies substantially though for different reasons.
So when the first stage of the recession started in 2008, we saw the developed economies of the US and EU hit badly while the BRIC economies (barring Russia) less severely hit.
George W Bush famously said “In an economic recession, I'd rather that in order to get out of this recession, that the people be spending their money, not the government trying to figure out how to spend the people's money.”
The problem is there is very little money either with Governments or the people to spend. With less funds available and return to recessionary pressures the second coming dip may not be a V curve but actually a U curve.
Of a world GDP of approximately $ 57 Trillion, the US with 1$ 4.5 and the EU with $ 16.44 are the two most important players. The situation in the US is not very rosy where the unemployment figure is at 9.7% as per the Bureau of Labour Statistics. Added to that is the fact that GDP growth has been lower than expected for the 1st Quarter of 2010, while the fiscal deficient is in excess of 10% and US national debt is reaching 75%. To add to the woes the recent drop in the stock market reflects poor investor sentiment on account of lower than expected growth for the 2nd quarter.
The EU is also facing similar pressures and as per the European Economic Forecast - Spring 2010, the EU GDP growth will be depressed for the 1st three quarters of 2010. The employment rate is expected to fall by 1% this year, putting greater pressure in the unemployment rate. The fiscal deficient would be as high as 6.8% throughout the EU, and a debt to GDP ratio of 78.7%. The recent crisis in the EU over Greece may just be a play on future crisis yet to come from the UK, France, Spain and Italy.
Further hampering a climb out from the recession with deficit’s and debts reaching record levels; Governments do not have the stomach for more stimulus packages. The lack of political will for more stimulus packages is more due to the alarming rise of Dept to GDP. Greece with a debt of 115%, unemployment at 9.2% and deficit at 12% caused a global crisis. If seen in the light of the fact that Greece’s economy represents just 2% of the EU, economy, what are the dangers posed from a nation like Italy which has a debt of 115%, unemployment at 8% and an accepted fiscal deficit of 6% (some say a lot higher), and represents 12% of the EU GDP?
Consumer spending in the US shows very weak sentiment. Retail figures for May 2010 in the US show a 1.2% drop. New home sales for May 2010 have plunged 33%. Along with a drop in Auto Sales this represents a continued scenario of return to recessionary economics.
Another factor likely to affect the world economy in 2010-2011 is a potential crash in World Agricultural prices. As per the FAO the Food Price Index has consistently been falling from 174 in Jan 2010 to around 164 in May 2010. Although highly tentative the forecast of rice production alone is estimated to see an increase of more than 4% in 2010-2011.
The BRIC economies of Brazil, Russia, India and China represent about 8.6 Trillion GDP, or close to 16 % of the world GDP. An expected drop in agricultural prices may greatly impact the BRIC economies where close to 39% of the labour force and 10% of GDP is based on agriculture, unlike the developed economies where only about 0.7 % (US), 4% (EU) labour force is agriculture dependent. Drop in agricultural prices would affect the Chinese and Indian economies substantially though for different reasons.
So when the first stage of the recession started in 2008, we saw the developed economies of the US and EU hit badly while the BRIC economies (barring Russia) less severely hit.
George W Bush famously said “In an economic recession, I'd rather that in order to get out of this recession, that the people be spending their money, not the government trying to figure out how to spend the people's money.”
The problem is there is very little money either with Governments or the people to spend. With less funds available and return to recessionary pressures the second coming dip may not be a V curve but actually a U curve.
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