Recession - A perspective

RECESSION – A perspective
9th November 2008
With IMF cutting world GDP forecast for the second time during this year, it is now certain that majority of the G7 countries are headed for a very severe recession which would last for a bitter 2 years plus.
What typically would happen in a recession in any country is:
a. Economic Output would fall.
b. Jobs would be lost.
c. Consumer spending & confidence is battered.
d. Investment climate takes a beating and risk aversion sets in.
And one can go on and on….
However what would happen if countries like US, entire Europe, Japan got into recession together? One might wonder its not the first time we have faced such a situation. Yes you are right but this would be the first recession post serious globalization has taken place in the world economy. This is also the only recession in the last ten decades where the trigger is the banking and financial services sector.
One may also argue that recession in developed countries would not mean that emerging/developing and less developed countries would also face the same situation. My answer to this would be yes, although developing countries are not heading into a recession the higher single digit growth rates would surely fall in the coming six to nine months. I so not agree with the RBI/Govt./Finance Ministers ambitious growth rate of 7% for India (Its more an election gimmick). Our GDP can’t grow beyond 5.5% next year. Anything above that would be a bonus. We would see the first effect in the industrial production numbers over the coming 6 months once production cuts are affected in the coming months.
All this would mean business would slow down, consumer spending & confidence will fall, property prices would crash, stock markets would continue to remain in intensive care unit, RBI would infuse liquidity to help the economy recover etc.
The stocks markets would be headed back to its lows of October 2008 before February 2009. The effect on property prices would be with a lag. Expect property prices to fall anywhere between 15 – 40 % in various heated pockets of the country by April – June 2009. Even though the interest rates and inflation would taper down over the coming months the real effective interest rate would continue to be in the negative territory. The only place where you could make money is ……….do let me know.
I may go terribly wrong with these predictions but who cares its better to have a view and go wrong rather than have none.
So it’s a good time to cut the fab, focus on your health, mind rather that money and seek divine intervention.
Vikram Shivram