The next Global recession; are we ready for it? – Part XIV By Dr. Bobby Srinivasan and Dr. Sudhakar Balachandran

March 15, 2016 | Posted by bobbysrinivasan << back to blog

The current global economic scenario is both baffling and threatening. Never in the history, the interest rate on bank deposit earned negative. Japan, Sweden, Eurozone, Switzerland are all currently doing that with many to follow. Many countries such as Nigeria, Russia, Brazil, Argentina, Venezuela, South Africa have their currencies devalued massively. Infact Venezuela is bankrupt and looks similar to what happened to Argentina in 2001. All commodity prices are significantly lower than before suggesting that the demand for manufactured goods is falling rapidly. China being a large exporter is feeling the pain and it is on the verge of devaluing their currency. There has been a heavy outflow of money from China recently that the Bank of Japan suggested to them to introduce currency control. The IMF chief has already warned that the global economic growth for 2016 and 2017 will be below par. All the oil exporting countries are feeling the pinch due to the declined oil prices. The inventories are so large that the recovery will not be any time soon. According to some reports the oil supply should drop by 3 million barrels a day to bring price stability.

What can the central banks can do to prevent the recession from happening. Already the interest rates are either near zero or negative and so there is no way the central banks could lower the interest rates any further to revive sagging economies. They have also tried with quantitative easing through which they pumped in so much money. According to reports nearly 9 trillion US dollars are already pumped into the global economy by the US, Japan, Euro, Britain combined. Their Central bank asset purchases are alarmingly high and hence there may not be further purchases. To add to the slowdown many companies in these countries are selling of assets creating balance sheet recession. The existing pumped money has created stock and asset prices to balloon which are now in the process of correction.

It is certain that Chinas role will be very important in the months to come. Their foreign reserves are falling rapidly and its growth rate is hovering around 6.8%. Analysts believe that it is waiting to devalue. Therefore the question is which country is going to take the global economy out of this recession. India is currently enjoying a 7.5% growth. Will it sustain? What impact will it have on the global economy? The most realistic answer is nothing. Indian manufacturing is doing poorly with no major recovery in sight. The agriculture sector saw two years of poor food production. The only sector that is doing well is probably the service and much remains to be seen as to whether it can help the globalized economy.

One of the suggestions made is that all countries should adopt an helicopter approach. With this approach the government can transfer money directly to its citizens by crediting their bank accounts and encourage them to consume. It is an experiment worth trying. Consumption is the major driver of the economy. Additional funds in the hands of people will encourage spending. India for example could transfer money to its citizen through the Aadhar Card. The future looks somewhat hazy for commodity countries like Brazil, Canada and Australia. Their currency values against the dollar are at all-time low. It is possible that the entire world would wait to see the recession arrive before they act. I don’t think it is wise using the experiences of Japan which is in permanent recession. Let us hope that our central brokers know how to deal with this situation. In the meanwhile let us wait and pray.

<< back to blog

About Us

TERM ZERO

Media

Rankings

Accreditations

NIRF

Campus

Blog

Annual Events

Full Time Programs

PGPM

PGDM

EXECUTIVE EDUCATION

Corporate Programs

PGXPM

PGPM Flex

MBA in Business Analytics

Family Enterprises Management

Ranked 6 ^th

Faculty

Research

Centers of Excellence

Conferences

Campus Recruitment

Internships

Placement Reports

Leadership Series

Talent Listings

Ranked 6 th

Ranked 6 ^th