Circumventing the recession

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With the potential renewal of the U.S. recession, there is a heightened sense of caution as the population prepares for the worst, opines Zain Naeem. Photo: Ben Sutherland/Flickr

With the commodity markets experiencing a fresh bout of volatility, and the Fed unsure of what future stimulus will be offered, and the IMF downgrading global economic growth, there seems to be stagnation in the economy which is proving to be a burden. Added to that, are the recent quarterly reports from the U.S. and the picture becomes bleaker than usual.

In the U.S.A. there seems to be a heightened sense of caution and people are preparing for the worst, in the form of a subsequent economic slowdown.

There was always pressure in the Eurozone on account of the austerity measures taking place in Greece, Portugal, and Spain. High unemployment and poor provision of social services led to rioting in the streets, while the financial markets tried to make sense of it all. With the round after round of talks, deal after deal was reached to bailout each of the distressed regions, but it was at the cost of the developed economies of Europe.

Now it seems that the more robust economies of the UK and the U.S.A. are coming under pressure as economy-boosting measures have started to lose their lustre. The recent signal from the Fed Chairman Ben Bernanke, shows that the bond buying program is not doing the job expected of it, and that hint of indecision saw ripples in the commodity markets. Gold lost some of its charm for the time being, as oil was the commodity of choice for many as it shoots past $100/barrel for the first time in 14 months.

The weight this is having on the world economy is becoming abundantly clear, as the IMF has downgraded its economic forecast for the second year in a row. 

China has seen production falling since last year and that slowdown in manufacturing — added to the exponential growth in spending, will mean that restrictive policies will have to be implemented sooner rather than later.

Until the demand for its goods again rises in the rest of the world and China has enough capacity to expand its production, the slowdown of the world economies will be felt in China too. That might not happen soon enough. The recent quarterly reports of U.S. firms show that all is not well when it comes to translating macro growth with company level growth. Companies are not able to stimulate growth and future forecasting shows that it will be some time before that happens.

Where does this leave us?

One option is to accept the recession has not yet ended, and that the growth expected — has not yet happened.

The policies and belt-tightening measures that have taken place have not worked, and there is a need to look at alternatives right now before we dig ourselves into a deeper hole. This seems set to become a more accepted reality, as people are losing their patience with high unemployment and dire circumstances.

Something will surely give.

On the other hand, the policymakers persist and hope that a turnaround takes place as expected. Just because the results have been delayed does not mean they might not occur at all. The key thing is that things must change and both options do address that fact. The approach will be the key here, as proponents of the status quo will want to persist, while the populace advances toward change.

The future might see this economic problem played out in the political arena with people using their votes to pick their policy as has been done in the recent past.

© Zain Naeem

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