Economic Recovery May Slow Down In Second Half of the Year 2009

Recession in developed countries otherwise slow down in the emerging economies has rattled the financial markets across the world last year. All major market Indices fell to the multi year lows in the second half of last year but since then markets have recovered some losses in the first half of this year. Even though markets are in good shape of recovery, I doubt any ‘v’ formulation in the near term rather it may be an inclined saw toothed. No doubt you can even discover a fresh low in the developed markets in coming months and hefty corrections in the gains of emerging markets. Subsequently may give the clear sign of stability, till then we may not feel comfortable in stocks markets.

Most of the stock market indices recovered only 25% - 40% losses (exception –SENSEX) from their all time high levels. The effect of stimuli (billions of dollars) is likely to fade away in coming half of this year. Already the British leaders are giving skeptical remarks about faster recovery. Weaker job markets, resumption of poor economic data arrivals, low confidence in recovery and global tension over nuclear activities may not allow the sharp and comprehensive revival of growth all over the world.

Worldwide stimulus packages distinctly about $800 billion by United States, € 200 billion by European Union, £20 billion ($29 billion) by England, 400 trillion Yuan ($585 billion) by Chinese government, ¥15.4 trillion ($158 billion) by Japanese government and many more additional stimuli, perks and tax exemptions by aforementioned countries and other countries like Australia, Russia, India, Brazil etc. have helped the world some extent to come out of disastrous situation. But this artificial recovery may not be sustainable in coming couple of quarters and as good as previous two quarters. Thanks to Obama administration for bringing up confidence of the people across the globe but the Obama mania alone may not be enough to earn the confidence on Wall Street for longer period. Bearish but may be realistic statements of the several global leaders also harming the confidence of the people.

The deepening crisis in job markets has become serious matter of concern in last few months. Jobless claims already approached to multiyear high in several developed countries. Jobless rate in United States has reached to a 25 - year high and approaching towards double digit (now 9.4%). Similarly in United Kingdom jobless rate soared up to 7.2% a 12 year high i.e. highest since 1997. Countries like Japan and BRIC nations (Brazil, Russia, India and China) also feeling the pressure of creating the jobs especially China and India because of huge population. Rising jobless rates will also curtail the consumer spending and money circulation in the system.

Economic data again started their poor show after some positive signals of improvement. The negative side revision of previous data also snatching the confidence of the people for example last quarter united states’ current account deficit was announced at $134 billion (4th quarter) but later revised to $155 billion and trade balance data of European Union data was revised to€ -1.8 billion from €-2.2 billion. Similarly downward revision in the figures of leading indicators of Canada, net borrowings of United Kingdom and in jobless claims of US in last fortnight have damaged the positive sentiment. The ABC/Washington Post Consumer Confidence released by ABC News and the Washington Post fell to -49 from previous -47 last week. Consumer price index (US) still remains indecisive and it was reported at 1.8% year on year. Money supply figures in United Kingdom has posted significant fall at 16.6 % compare to previous figure17.4% year on year.

Even though I am not completely bearish on the recovery, at this juncture I doubt on the sustainable growth and recovery. The recovery process may get further blow from the external factors which are still unpredictable but not deniable. The tension over nuclear warheads, terrorist attacks, and North Korea, Israel, Iran, and Taliban weapon developments can spoil the recovery party anytime in imminent months. The threatening activities (launching long range missiles) of North Korea already created lot of tension in the several neighboring countries and international organizations.

Therefore in conclusion I would like to say that the recovery will not be an easy process especially when exports are down and deficits are high, the citizens are unemployed, consumer confidence and investors’ confidence are at low levels. The currency market is still in indecisive phase because the size money which governments have printed may bring dire upshots in coming quarter and I recommend the readers and investors that please have an eye over the forex markets along with your portfolio. We also do not know that what are all the measures governments will adopt to solve the inflation problem? That will be gifted with improved growth. This is why it looks like healing process of wounds of hemophilic patient.

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