By admin | December 18, 2008 - 5:40 am - Posted in Articles

Recession word itself enough to create a panic in the stomach of the whole world. If someone gets up and checks the empirical meaning of recession in the good lexicon, he or she will feel something disgusting about it; fear factor will dance in front of him or her. It looks like coming to hell just after knocking the door of the zenith.

At this juncture world is confronting the same fearful word “Recession” in empirical way. The world had good news that U.S. GDP (Gross Domestic Product) has grown 3.3% annually in second quarter of year 2008 but it was just like an oasis and faded away when US government has given whopping jobless claims 444,000 on last Thursday. Rising inflation, housing slowdown, 16 year low housing prices, diminishing industrial growth, Federal Reserve policy on interest rate all are rubbing salt on the wounds. Now US government is pondering over the Fannie and Freddie financials and set to take over the housing mortgage giants.

It is not only United States of America but whole world starting from African countries to European countries, which covers Asia too. Markets from New Zealand to India suffered a sell-off Friday, September 5, 2008, with as many as five benchmark indices set 52-week lows, as investors dumped stocks on concerns about weakening growth prospects and uncertainty over the global economy.

Socio-political issues has created unusual troubles in South Africa, which is known as the most prosperous country in the African continent and precious metal mining hub across the globe, had reeled on august 6, 2008, when rand has fallen 1.90% against the USD due to trade union nationwide strike to protest against the food and electricity prices. State military of Nigeria said, “Blast was not an accident but deliberate sabotage by a group protesting the alleged nonpayment of fees by the energy company to the local population.” Nigeria social turmoil is on acme and any time untoward happening may occur that can fuel, for the time being subsidized, crude oil prices. Zimbabwe political instability continues to romp over the constructive activities in the region. The inflation in Zimbabwe jumped to over 11,250,000% in June. Rebels in Kenya are also contributing enough in poorly shaped African economic condition.

Now look at Asian economies, first comes China where everyone was thinking that after the Olympics china will resume the economic work on growth agenda and the demand for the commodities like copper, aluminum and steel will rise but it was a distant dream all base metals are setting new lows on commodity exchanges. China also eyeing on currency markets and all set to devalue the Yuan against its rival currencies in order to enhance the export growth which has become less lucrative for the exporters. World Bank has trimmed China’s growth rate to 9.60% from earlier 10.80% for the current fiscal. China needs to generate more than a million jobs every year and it is very difficult without double digit growth rate on the cards.

Japan, The land of rising sun, is also undergoing through tremendous inflationary pressure which was previously known for deflation. Prime Minister Yasuo Fukuda resigned after less than a year in office. His government failed to rein in inflation. The rise in inflation has been a trauma for a country that has spent the last decade grappling with deflation. Core consumer prices were up 2.4% in July 2008 from a year earlier, a panic bounce since 1997, and many Japanese have clamped down on spending. Japanese finance ministry has already given cowardice statement over the current year GDP growth rate. Experts say Japan has already slipped into recession and no one is predicting growth above 1% this year.

HengSeng, the Hong Kong stock index, has broken the 20,000 level. South Korea is under the scan of developed world where nuclear energy matters continues to harass the top officials of the nation. Korean Stock index is also not showing any glimpse of breaking upper records.

India’s economy grew at its lowest rate in the first quarter of financial year 2008-09 since last three years. The Reserve Bank of India is all set to rein into record high inflation by applying tight credit policy which remained above 12% level for the past few weeks. Annual growth slowed to 7.90 % in the first quarter of 2008-09 which ended on June 30, significantly lower than the 8.80 % rate reported for the January – March quarter.

Europe also nowhere different at present whole Europe is combating with rising inflation and fresh downward revisions in the growth rate. European inflation accelerated to the fastest pace in almost 16 years to a record high 4% earlier before arriving at 3.8%. Consumer business confidence index is also recorded significant decline and Economic confidence fell in August to 88.80. Brussels has revised the Euro zone growth rate downwards to1.80% from earlier November estimate 2.20%. Economic experts offering a faded hope and a few of them declared that next revision would be 1.30%.

Now the world is witnessing a global slowdown which can be said recession but optimistic experts say it is temporary and can be worked out with revamped financial policies. But at this juncture when the status quo is not allowing the central banks to act any way, one side inflation is rising which is not encouraging the central banks for rate cut and other side slowing economic growth is not supporting the rate hike. Hence forth in the last week Bank of England and European Central Bank kept their interest rates undisturbed, 5% and 4.25% respectively. United States Federal Reserve also kept its rate unchanged in last meeting.

Then utmost what can happen?

I think US credit market turmoil and high inflation is nowhere supportive in economic way for the world. Russia- Georgia tension, US-Iran-Israel issue and destructive happenings like terrorist attacks, natural calamities and political turmoil all over world is not foreboding good for the world.

The stock markets, commodity markets and financial instruments are heading towards south and not left even an iota of positive happening. Dow Jones, Nasdaq, FTSE, BSE, CAC, KOSPI, HengSeng, Nikkei, Shanghai all these stock exchanges shed their most of last year gains. Simultaneously commodity markets also near to nadir gold, the safe heaven commodity, has fallen more than $200 US after reaching $988US earlier this year. Silver is already near to set a new of the year. Likewise copper, platinum and aluminum are also fallen to lower extreme. Euro, USD, GBP, and Japanese Yen are behaving in the strange way and creating turmoil in the fundamentals of other financial instruments and markets. At present market elements are fighting for the worst rank. If the currency exchange rates changes more than 10% within a week,

The Raison d’être behind whole scenario of financial instability is that, fundamentals have not been respected during last year across the world. Investors have lost confidence over the period of wrong happenings that led to unsystematic investment in the financial markets. As far US, the world largest economy is concern until presidential election (new President) glimpse of hope is far away since it requires a major policy change. If same situation prevails shortly world may face biggest foul turnaround.

The whole world need to get together and must make necessary changes in the economical and political policies in order to overcome from this current imbroglio. The fundamentals of the market i.e. Demand and Supply has to be restored. People must realize the real money. G-7 meeting proposals have to be implemented in order to soothe the boiling intricacy of the world.

What can an investor do?

A good investor must workout different strategy for the investment. Meantime investors can stay away from the paper stocks and they can invest in the real asset value market viz. real estate, and commodities which runs on fundamentals rather than speculations. This is the best time to invest in housing because the prices are at possible lowest end. Markets with real assets value will perform better than paper assets in coming year.

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