Sunday, September 13, 2009

Will it be ‘W’ ?

A year has gone by since the collapse of US investment bank Lehman Brothers sent major shock waves across financial markets and eventually dragged the global economy into a severe synchronised recession. Signs that the global economic recovery is strengthening continue to emerge over the past few weeks, as increasingly more key indicators, such as business sentiment, trade, manufacturing and industrial production indices, are turning positive and more or less maintaining their uptrend from the trough, helped by enormous spending by governments over the globe. While there are risks associated with a prolonged expansionary monetary and fiscal stance – such as rising government debts, inflation, and the encouragement of new bubbles to develop in the stock and real estate markets – the consensus view is that unwinding the stimulus measures too soon could derail the global recovery process. This is particularly so as, amidst the recent optimism, warning bells are being sounded on the shape of the global economic recovery giving rise to concerns about a W-shaped recovery or a double-dip- recession. (A double-dip recession refers to a recession followed by a short-lived recovery, followed by another recession, when (GDP) growth slides back to negative after a quarter or two of positive growth.

India’s Recovery Wobbles?

RBI has warned that the Indian economy is unlikely to revert to its trend growth rate soon, as recession in advanced economies would eat into global growth and world trade. A drought like situation through most of the monsoon season has also led to concerns on the agricultural economy. Consumer spending on the other hand has been very positive, as indicated by the double digit growth of consumer durables in the IIP numbers for July. Easier availability of credit coupled with higher consumer confidence and the festive season did wonders for car sales in August; while market leader Maruti Suzuki posted a 42 per cent growth, Mahindra & Mahindra, showed a 42 per cent rise in sales of its multi-utility vehicle range, while Hyundai Motor India and Tata Motors showed 11 per cent increase over the same month last year.

India, who had to resort to IMF loans on a few occasions till the early nineties, will now take part in a global effort to make resources available to the International Monetary Fund (IMF) for lending to countries in need. India will invest up to $10 billion of its reserves in Notes issued by the IMF; such investments would be treated as international reserves.

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