Economic Business Analyst

Fear of world economy entering recession

Major economies have been crippling with weak growth during last year.  Along with the developed economies the emerging markets have joined the stagnancy creating a great fear of world economy entering into recession.  The world didn’t see any real growth after the 2008 recession and had just been crawling over.

Among emerging markets, India has seen a sharp decline in the growth and industrial production.  The growth rate has come down below 7 percent from high growth rate of 9 percent.  The economists expect the growth rate may go even below the average growth rate of 6 percent.  The real problem in Indian economy is the high inflation and exorbitant interest rates.  The central bank kept on increasing the interest rate, as the inflation could not be tamed within the acceptable limit.

The Chinese economy have started to cool down and the growth rate is expected to be below 9 percent.  As the economy mainly depends on the export growth, the main destinations US and European economies in deep trouble, the export is not expected to pick up largely in the near future.  The occupancy rate of office buildings in main cities is well below the standard and there is chance of real estate market collapse any time soon.  The bad debt among banks has also started to increase due to firms going bankrupt without enough demands.  There is over capacity in almost all the industries due to higher number of firms started to capture the export market. 

As Chinese economy starting to cool down and western countries in deep recession, other emerging markets such as Brazil and Russia that are dependent on resource markets are also affected.  The main culprit on pulling down the world economy down is European economies.  The economies are almost stagnant and unemployment rate is more than 10 percent in many countries. 

The only bright spot amidst this depressive mood is the quite revival of US economy.  The unemployment is coming down slowly and the economy has started to change the gear to better growth.  Along with US, Germany has also started to grow faster than the other major countries. 

As Chinese economy becomes larger and even expected to overtake US economy in a decade, the demand and consumption of China is very important for the balanced growth of world economy.  Instead of solely depending on feeding products to the international markets with its cheap and efficient labor force, China has to take some strong measures to revive its domestic consumption. 

In most of the cases, the growth is stalled due to inappropriate political actions or inactions.  For instance, the growth in India is stalled due to the government not taking any important decision due to its minister’s mix up in corruption scandals or populous political spending done in Europe.   So the countries have to take a lesson from these real experiences to properly manage the economy without any bad political decisions.

The outlook for the world economy is not as bad as thought, it is only some countries in Europe that are under real economic pressure.  This may be due to their tight control of currency movements and policy restrictions.  As Europe manages its affairs properly, it can be expected the world economy to slowly come out of the recession fear and start to grow faster.  Once the developed economies start to grow, the emerging markets and smaller countries will follow suit in the revival.  Each country may need small corrective measures according to the internal economic and political situations and once these actions are taken, the world economy can be expected to go back to 90’s growth rate.