Is world economy is under the claws of Recession again?

Is world economy is under the claws of Recession again?

On 20th April 2018 a sensitive news was broken out which was given by Mr. Axel Weber, Chairman of Union Bank of Switzerland (Popularly known as UBS). He warned that risk of recession is esclating. He further told that though the present economy is running well but this good pace may end in the next 2 to 3 years.

Another news was published by credit suisse, a renowared investment analyst in the month of May 2018. Mr.Andrew Garth wait, Analyst of credit suisse said that “A U.S. recession will not occur until 3rd quarter of 2020, an in the mean time stocks are good bet’. If we analysis both the statements, it is clear that recession may come within the year of 2021. The US stock brokers are given their views more or less in the same line. They have indicated two reasons.

(i) Crude oil price has reached high crossed 80 dollars. they further pointed out that in last 5 out of 6 world recession, same thing had occurred previously.
(ii) Most of the stocks are overvalued which is the common symtoms of pre-recession period.

Now a question may arise in the mind of stock market traders and investors that is recession knocking Again ? If so, what would be its intensity?

Before going to this discussion you should clear your idea first what is recession? what its effect on the economy?what are the remedies to stop the recession? etc.

What is Recession ?

A general definition of the major Economists are like this. In an economy when there was a negative growth rate of GDP for two consecutive quarter or more, then it can be said that the economy has been affected by Recession.

But according to the National Bureau of Economic Research. A recession is when the economy declines significantly when there was a drop of the following 5 economic indicators such as Real GDP, Income, Employment,Manufacturing and Retail Sales at least 6 months.

Recession – Early symptoms :

When there was a positive growth in the economy but gradually slowing down. The first sign of an impending recession when one of the leading indicators, manufacturing and Employment are shown negative or positive but far below the level of previous quarter. Manufactures receive large orders in advance. If that advance order declines over time, then the manufacturers will stop hiring which will affect the employment data.

A live example

All we know that there was a great recession in world economy in the year 2008-09. There were negative GDP growth in last consecutive four quarters, last 2 quarters of 2008 and first two quartors of 2009. But the recession was actually started in the 1st quarter of 2008 because all the five economic indicators such as Real GDP, Income, Employment, Manufacturing & Retail sales were declining from that time. In January 2008, the economy lost 16000 jobs, the first time since 2003, Business orders decline 0.6%, compared to previous year and housing prices reduced by 10% as more as there was no buyer, Crude oil prices was reached at highest level.

What are the causes of Recession ?

There are many causes for happening of recession. The major causes are as follows :
(i) Higher interest rate
(ii) Fall in real wages
(iii) Fall in aggregate demand
(iv) Credit crunch
(v) Increase cost of production
(vi) Increases loan default.

Are there any benefits in a recession ?

Recession is harmful in the economy. But there are few benefits in indirect manners These are : —
(i) It cures inflation
(ii) In the time of recession the government eager to stimulate the economy by lowering tax rate, spending on Social programs etc.

What are Remedies to stop the recession ?

Here the Govt. plays the major role in order to eradicate recession. But companies and individuals can not escape from their responsibilities.

Government Responsibility

(i) Encourage export by giving incentives to the exporter. E : Book India \ 2018\ F\Adhya-1 2nd proof 11.6.18 [16]
(ii) Encourage imports of high price commodity. If the steel price is excessively high in our country, then encourage on steel import.
(iii) Encourage Savings
(iv) Cut Taxes
(v) Focus on infrastructure Development
(vi) Reduce interest rate
(vii) Encourage Foreign Direct investment (FDI)
(viii) Encourage Foreign portfolio investors (FPI)
(ix) Ensure peace full atmosphere conducive to new business.

Responsibilities of Companies

(i) Reduce profit margin
(ii) Starting up of new venture
(iii) Generate employment
(iv) Stress on innovative product
(v) Create High level customers satisfaction.

Responsibilities of Individual

(i) Take more workload.
(ii) Temporary postponement of salary hike agitation.
(iii) Pay the debt timely.
(iv) Concentrate on savings
(v) Pay taxes promptly
(vi) Buy Assets
(vii) Create multiple income stream.

Now come to our principal discussion Most of the market pandits are thinking that recession may come within 3 years. There apprehension is seems to be right. If we study the Indian economy as well as Indian stock market, we may feel the recession situation. why? The crude oil price has reached at highest level. In spite of several efforts of the Government, it cannot be controlled. As a result a severe adverse impact has fallen on the economy. In the recent by election of Lok Sabha & Assembly the ruling party has lost their seats due to one of the major reason i.e. oil price hike, the political analysts think so. The GDP has increased but not expected level.

Other major indicators performance is not so good. The Govt is very much annoyed of employment data figure. Look the stock market. Many shares are overvalued, if you study NSE 500 shares. The erratic nature of some shares is creating some agony in the mind of investors.

Now the question is whether the investors/traders of the stock market will close their hand in the fear of recession which may come after 3 years. The answer is obviously ‘No’. The reasons are as follows.
1. In India the GDP of the June quarter has been increased. In USA & Great Britain, there was no adverse news on GDP. So apprehension of immediate recession is seems to be wrong.
2. The other indicators performance is not good but not bad also. i.e. average performance.
3. Crude oil price hike seems to be a temporary phenomenon.
4. Over valuation of stock price seem to be not more than 10 to 15%.
5. Trade war will not expected to happen because US Govt has already liberalized their policy, So far news received.

In conclusion it may said that credit suisse has rightly pointed out that the stocks are good bet in between 2018-2020.

So no question of fear, Go-ahead at least 2 years.

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