Bad news: World is sliding into a new recession
Many rich countries have struggled for three years to emerge fully from the Great Recession of 2008-09 . Alas, the world is slipping into a new recession. No global authority has dared say so, but the writing is on the wall.
A classic lead indicator of a global recession is a crash in commodity prices, which is evident today.
Brent crude, the benchmark variety that determines Gulf oil prices for India, has fallen from $125/barrel in January to barely $ 90/barrel. Major global commodity indices have slumped over 20%. Mittal and Tata are closing some global steel plants because of falling demand. Prices of non-ferrous metals, cotton, coal and iron ore have crashed.
This reflects decelerating or falling GDP growth across the globe, and growing realization that conditions will remain depressed for some time. Europe has long been a troubled zone, but the US economy is stalling while ominous negative signs emanate from China.
The Eurozone was predicted to have a mild recession starting October 2011 and ending by the summer of 2012. The region slid down in the October-December quarter and then, thanks to a good German performance, stabilized in the January-March quarter. But the latest data show European growth plummeting in the April-June quarter, with even German factories suffering the sharpest contraction since June 2009. The UK, which is outside the Eurozone , is deeply in double-dip recession.
Optimists think that even if rich countries get into trouble, the strength and resilience of fast-growing emerging markets - above all China - will stem the rot. Alas, China is slowing down too. The HSBC Purchasing Managers' Index shows that Chinese manufacturing has actually fallen in May and June.
China's slowdown has hit Japan, which depends on exports to that destination. Japan is now running trade deficits month after the month, for the first time in decades. This is a game-changer .
The global fall in commodity prices has sent shock waves through all countries that prospered by riding the commodity boom, including Brazil and Russia. India, a net commodity importer, should gain from falling prices. Yet its GDP growth has plummeted too.
There is a standard remedy for recessions . Governments cut interest rates, provide easy money, and run large fiscal deficits to revive demand. Alas, these strategies have very limited scope today because the world is already replete with loose monetary and fiscal policies thanks to attempts to regain momentum after the 2008-09 Great Recession.
Interest rates are at or below 1% in Europe, Japan and the US. The US Federal Reserve and European Central Bank (ECB) have injected trillions of dollars and euros respectively into their regions, breaking all records in easy money.
Many rich countries have struggled for three years to emerge fully from the Great Recession of 2008-09 . Alas, the world is slipping into a new recession. No global authority has dared say so, but the writing is on the wall.
A classic lead indicator of a global recession is a crash in commodity prices, which is evident today.
Brent crude, the benchmark variety that determines Gulf oil prices for India, has fallen from $125/barrel in January to barely $ 90/barrel. Major global commodity indices have slumped over 20%. Mittal and Tata are closing some global steel plants because of falling demand. Prices of non-ferrous metals, cotton, coal and iron ore have crashed.
This reflects decelerating or falling GDP growth across the globe, and growing realization that conditions will remain depressed for some time. Europe has long been a troubled zone, but the US economy is stalling while ominous negative signs emanate from China.
The Eurozone was predicted to have a mild recession starting October 2011 and ending by the summer of 2012. The region slid down in the October-December quarter and then, thanks to a good German performance, stabilized in the January-March quarter. But the latest data show European growth plummeting in the April-June quarter, with even German factories suffering the sharpest contraction since June 2009. The UK, which is outside the Eurozone , is deeply in double-dip recession.
Optimists think that even if rich countries get into trouble, the strength and resilience of fast-growing emerging markets - above all China - will stem the rot. Alas, China is slowing down too. The HSBC Purchasing Managers' Index shows that Chinese manufacturing has actually fallen in May and June.
China's slowdown has hit Japan, which depends on exports to that destination. Japan is now running trade deficits month after the month, for the first time in decades. This is a game-changer .
The global fall in commodity prices has sent shock waves through all countries that prospered by riding the commodity boom, including Brazil and Russia. India, a net commodity importer, should gain from falling prices. Yet its GDP growth has plummeted too.
There is a standard remedy for recessions . Governments cut interest rates, provide easy money, and run large fiscal deficits to revive demand. Alas, these strategies have very limited scope today because the world is already replete with loose monetary and fiscal policies thanks to attempts to regain momentum after the 2008-09 Great Recession.
Interest rates are at or below 1% in Europe, Japan and the US. The US Federal Reserve and European Central Bank (ECB) have injected trillions of dollars and euros respectively into their regions, breaking all records in easy money.
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