Posts Tagged ‘recession’

US Recession officially over – but what about the second dip

September 20, 2010

The recession officially ended in June 2009, according to the Business Cycle Dating Committee of the National Bureau of Economic Research, the official arbiter of such dates.

As many economists had expected, this official end date makes the most recent downturn the longest since World War II. This recent recession, having begun in December 2007, lasted 18 months. Until now the longest postwar recessions were those of 1973-5 and 1981-2, which each lasted 16 months. Recession and expansion dates are based on various economic indicators, including gross domestic product, income, employment, industrial production and wholesale-retail sales. The Business Cycle Dating Committee typically waits to declare that the economy has turned until well after the fact, when it has a longer track record of economic data to confirm a new trend.

But the double-dip remains a distinct possibility even if the OECD believes the US may just escape it.

A graph of the Early 1980s recession in the Un...

Triple-dip in the 1980's

The United States will experience a slow, jobless recovery from its deepest and longest downturn since the 1930s but will avoid a double-dip recession, the Organisation for Economic Co-operation and Development said today. In its annual health check of the world’s biggest economy, the Paris-based OECD said that it expected activity to expand by 2.6% in both 2010 and 2011 without having a marked impact on the country’s near double-digit jobless rate.

But the optimism is speculative and not shared by everybody. Some believe that jobs growth is not happening at a speed sufficient to avoid the double-dip.

The U.S. economy has a “significant likelihood” of entering a double-dip recession if the government doesn’t step in to help the unemployed, economist Robert Shiller told MarketWatch News Break in August. The Yale University professor and author of the best-selling book “Irrational Exuberance” pinned the probability of a double-dip recession at more than a 50-50. Shiller pointed to the nation’s stubbornly-high unemployment as a root cause of lingering economic woes. And with the Federal Reserve running out of bullets to fight a second recession, he urged Congress to join the battle and focus on putting people back to work.

Strong GDP growth in India but danger signals persist

September 1, 2010

India and China continue to grow and should be able to weather the storm of the coming second dip of the double-dip recession which is looking ever more likely in Europe and the US – notwithstanding the recent growth in Germany and the UK.

In India the sharp growth in the manufacturing and service sectors could overcome the demand side weakness that is also apparent. The April – June quarter has had the highest growth for 10 quarters. Bringing inflation down from the current 9+% becomes crucial. The good monsoon so far should help. The hotels and tourism sector should get a further boost in the 3rd quarter when the Commonwealth Games is held in Delhi – though the Games themselves seem to be mired in corruption scandals and the late completion of all the venues.

From the Hindu Business Line.

Powered by a manufacturing rebound, the Indian economy has recorded an 8.8 per cent growth during the first quarter of the current fiscal (April – June 2010)

The 8.8 per cent year-on-year increase in the real gross domestic product (GDP) compared with 6 per cent in the same quarter of 2009-10 has been largely due to robust industrial (especially manufacturing) growth from a low base.

The industry, as a whole, grew 11.4 per cent against 4.6 per cent in the corresponding period of the previous fiscal, when factories were struggling to emerge from the slowdown triggered by the global financial crisis of late 2008.

Within industry, manufacturing registered a 12.4 per cent year-on-year jump, against 3.8 per cent during April-June of last fiscal. But, it is not only industry that has done better relative to last year. Even the farm sector and services have notched up higher growth rates for the first quarter. While agriculture has benefitted from a decent rabi harvest that followed a drought-impacted kharif crop, in services, the impetus has come mainly from commerce (trade, hotels, transport and communication) and construction.

But as The Times of India points out, danger signals on the demand side still persist and could threaten future growth.

However, a closer look at the data, say economists and bankers, reveals that the upward trend may not continue for long. StanChart in a report, said that despite strong growth in Q1, slow growth in domestic demand and global slowdown raise doubts about growth in the next few quarters. A research report by Nomura also pointed out that the biggest surprise in India’s growth figures is the substantial divergence between the real GDP (gross domestic product) growth estimated at 8.8% (year-on-year basis) and the real GDP growth at market prices, estimated at 3.7%.

The report explained that the difference between the two is indirect taxes and subsidies offered by the government. Government’s latest figure suggests that taxes are falling while subsidy payments have risen substantially.

Germany: Highest growth rate since Reunification

August 15, 2010

The motor of the European economy is revving up again.

Der Spiegel reports:

Graphic: German growth forecasts for 2010

Germany just posted its strongest quarter of economic growth since reunification in 1990. During the second quarter, an exports boom, increased consumption and government stimulus helped the country chalk up growth of 2.2 percent. Buoyed by a surge in exports and continuing government stimulus programs, Germany’s economy is recovering at a faster pace than most economists expected. During the second quarter, gross domestic product increased by 2.2 percent on the previous quarter, the Federal Statistical Office in Wiesbaden announced on Friday, marking the largest quarterly economic growth since the country’s reunification in 1990.

There has been some criticism of the austerity package being introduced by the German government and of the ending of the stimulus packages. But perhaps the timing is right after all. But whether German growth can prevent a doubel-dip recession in the rest of Europe remains to be seen.

The 5 million unemployed in Germany in 2005 has now reduced and could soon be  less than 3 million.

In addition to benefiting the labor market, the German economic stimulus program also boosted consumer spending. Short-time workers have more disposable income than the unemployed, and as a result, German consumers were hardly forced to cut back during the crisis.

„Monopoly“ of Iron Ore producers together with speculation could create a new bubble

June 13, 2010

Iron ore is not a scarce resource but the ore price dominates steel price and a rising steel price – in turn – is a fundamental constraint on the rate of global economic recovery. Production of iron ore is dominated by just 3 players – Rio Tinto, Vale and BHP Billiton – and they are now under investigation by the European Commission and German authorities for building cartels.

The CEO of Thyssen-Krupp accuses them and speculators for jeopardising the economic recovery.

Ekkehard Schulz

“The new pricing system opens the floodgates to speculation and manipulation. A massive bubble is threatening to develop in the natural resources market. Its dimensions could even exceed that of the real estate problem in the United States two years ago.”

This is being compounded by taxation and the opportunistic Australian Resource Super Profits Tax would seem to be a case of shooting oneself in the foot !! A case of greed overcoming common sense perhaps?

Metals price recovery confirms recession is over

April 18, 2010

China with around 12% and India at around 8% growth have shrugged off the recession and seem to be providing much of the power behind the global recovery.

The Indian Finance Minister seems to think that Indian growth rates could even overtake China’s.

Basic metal prices provide a solid sanity check and the recovery of metal prices is well underway. Recovery of Nickel price is a good indicator that specialised and stainless steels are back in demand again.

The steel cartel is becoming active again after having a couple of years with nothing to shout about, and seems to be mainly driven by the demand from China.

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