Monday, October 3, 2011

Recessionary Hangover

IMAGE SOURCE: GOOGLE
Canadian recovery from the last ‘recession’ remains highly vulnerable as it’s going to be overtaken by another dip in the global economy. Fingers are being pointed to the ailing Euro as the faltering economies of Greece, Italy, Spain and Portugal as well as the level of debt they carry.
The contagious debt crisis in Europe can spread from country to country leaving no one immune from its terrible adverse effects upon the various peoples of the world directly or indirectly.

Most worrisome is the market trading up and down on the ongoing turmoil linked to Greece's debt along with the related/potential failure of the “entire Euro zone.”
The IMF (International Monetary Fund) took notice of the deepening concern about the alarming turmoil and uncertainty within Europe and the USA. Furthermore, financial analysts do believe that Greece is now virtually certain to default on its debt late this year or early next year; may be followed by Spain and Italy too.


google image
Optimistically, Germany feels quite differently and claims, “Once a ‘financial lifeboat’ is prepared, then default by a single member of the Euro can’t be catastrophic.”
In fact, a recession being part of economic cycle is a period of time when the economy contracts due to negative economic growth. It clearly means if the growth remains low, there is an increased spare capacity and increased unemployment. Lower output, lower investment, higher unemployment, increased PSNCR (the amount of money the government borrows to meet its expenditure) and inflationary pressure are seen as disturbing factors against the economic normalcy. Technically speaking, a falling economic growth for two consecutive quarters indicates a period of economic recession.

Currently, share prices are falling in Europe, Christine Lagarde Director IMF commented that the world was in “a very dangerous place.” The president of the World Bank, Robert Zoellick, talked of concerns that ‘contagion’ would negatively affect emerging economies, as well as the economies of developing nations as the jitter in our own stock markets testifies.

Nevertheless, the top base metal choice is copper, and China accounts for about 40 per cent of global demand for the metal. Yet, a recent drop of price (of copper below three US dollars per pound for the first time in 14 months) signals another loss of investors' confidence that China’s appetite for commodities is strong enough to prevent another global recession.
Clearly, there is a risk out there that China might be slowing more than we anticipate.

On the other hand, even Canada's economy is facing unnoticeable growth prospects through 2011 as a recessionary hangover continues abroad and headwinds emerge at home according to a new report from CIBC World Markets Inc. http://research.cibcwm.com/economic_public/download/fsep10.pdf

At the moment, Canadian economy is also somewhat softening in many sectors. A pessimistic export picture is being blamed on the sluggish global recovery as well as the competitive challenges of a strong Canadian dollar. Nevertheless, Canadian currency is already on its downward trend against the green back.
Image source: Google

Since the U.S. economy is most likely to experience a major drag on growth, overseas economic growth looks too much lopsided with possible negative repercussions on the Canadian economy of course. Other concerns are falling house prices and reduced use of credit that could lead Canadian consumers to cut spending growth.
A cut in immigration quota and retiring baby boomers are simply adding to the scenario.

As the key feature in determining the rate of economic growth remains the level of consumer and business confidence, therefore, with high confidence, rate hikes may not reduce demand.
But, if the U.S. is hit by another recession, Canada would not be able to escape unhurt.

Presently, Canada's economy is on a much better footing than those of the U.S. and other countries, yet fear of recession is genuine under the terrible global turmoil.
To safeguard Canadian economic wellness, the bank of Canada is expected to give new direction about interest rates hikes in the next spring. This action would be causing a pause slowing capital inflow. Resultantly, a huge trade deficit is likely to push the Canadian dollar into the neighbourhood of 92 cents U.S. over the next six months.

A weaker labour market means that consumer demand should remain soft. The proposed austerity measures will also keep a lid on domestic demand, and renewed concerns over sovereign debt risks will weigh on business and financial market sentiment. Canadian imperial bank of commerce (CIBC) expects that the European Central Bank and the Bank of England will take time in raising interest rates.
Moreover, higher rates still pose a longer term threat for gold.

recession worry (google image)
Global recession is still looming and the international finance officials are struggling to reassure markets that Europe will not be tipped into a continent-wide meltdown by a Greek loan default.

The “European indebted countries” still have a way to prepare a strong rescue package, but the short term health of Canadian economy can be in jeopardy again.

Unfortunately, the previous failure to stave off European economic crises of 2008-09 hit the Canadian economy  severely, therefore,  Prime Minister Harper is seriously considering adapting policies accordingly to deal with double digit recession by putting deficit reduction plan on hold.

Diplomatically, Canada backs promises by the IMF and the G20 Meeting in France to help out the European authorities to deal with the widening debt crisis on the continent.
Canada’s majority government is in a “win-win situation” to provide the needed stability in difficult economic times. Similarly, the Bank of Canada is expected to keep interest rates stable, should the U.S. economy stumble.
It’s more than encouraging that Canada’s economy started the third quarter on a high note, easing fears of another recession. Harper stresses need for belt tightening measures in Europe and the US to trim their heavy debt loads.
According to some experts, a collective stimulus spending is an effective tool to re-generate the world economy. 
Historically speaking, time is what cures a recession, not bailouts.


52 comments:

Anonymous said...

Dear Mian Sahib

For common Reader, these lines have a weight:
Canada’s majority government is in a “win-win situation” to provide the needed stability in difficult economic times.
Similarly, the Bank of Canada is expected to keep interest rates stable should the U.S. economy stumble.

Well calculated analysis on current Euro, US and Ca $.

Regards,

Pari said...

very informative post.
Your analysis is clearly indicating that indebtedness is causing recession hitting the job market. Debts might have been mis-managed or mis-directed to reach such a shameful fate.

Asma Khan said...

A complete analysed... :)
Though this is not a part of my interest, so unable to comment about... :)
Visit my blog--> Stay Blessed

Muhammad Israr said...

sooner or later it had to happen... when one consumes more than one earns, debt is invetible... so the euro crisis and the us crisis and with it the international market crisis are the results... i hope the world come to its senses and mend our ways to spare the already suffering population from another crisis....
thorough and well researched analysis :)

MAHNOOR said...

analysed post, totally. im not much into current affairs, but u make me read it till the end, anyway :)

Thinking said...

hmm...I never read such articles (economics)with such ease...sorry can't say anything since I have no idea about what i going on in Canada.

Only Pakistani people are becomining poorer everyday....hmm....

tariq said...
This comment has been removed by a blog administrator.
tariqmian said...

@Pari:>>>>>>>>>>>>thanks for feedback.
_____________________________

@Asma Khan: >>>>>>>> I appreciate for your boredom
_____________________________

@ Muhammad Israr: I am glad you read and took interest to give your valuable opinion....
sooner or later it had to ______________________________

@ MAHNOOR:.......
Very nice of you to go through the whole post despite its economic type of stuff.
Well done!
_______________________________

@ Thinking

I do realise the topic is of no interest to you, yet it's related to the whole world due to a big mess up with overloaded debts and lack of money generating businesses--it affects the humankind.
__________________________________

@anonumous:

thanks for appreciating the worth of my analysis. Please come again.

Ford said...

Re: Global recession--
European banks are in danger of failing as Europe's debt crisis continues to intensify.

neelam said...

The latest update is:
Government debt crisis is a potential threat to European banks.
Out of control credit crisis is affecting the Continent.

Spanish and Italian banks are declining massive numbers of loans applications; and charging customers more as the "sovereign debt crisis" continues to drive their own borrowing cost higher.

Chintan Gupta said...

Hmm!! Recession is knocking the doors for sure, for some the doors have already been knocked. Obama has not played well either and Ireland had a major blow too recently. I can not wait anymore for 2012, Dec.

Mishi said...

well written Tariq Sab..its just we pakistani are too engulfed with our Power crises that we cant even make an honest attempt to see whats going on around us! all i know is how my Pakistani rupee is losing its value in front of Dollar!

But yes you have gripped it really well...as usual of-course!

Tariq Mian said...

Chintan ji, --thanks for your quick response.

About recession battle, you have to wait and see.
__________________________

MISHI sahiba,
Rupee is losing its value because of hyper-inflation and extra printing of new notes to accomodate pay raises 100% for the military and 50% for the civillians.
What a fake scenario?
Pray for Pakistan--

Usama Rehman said...

Indeed a very profound and thorough analysis.
The entire Europe's fate is hanging on the shoulders of just two countries…..France and Germany!
Ireland, Poland, Greece, Spain, Italy all in a vicious circle of indebtedness that might result in a Domino collapse of the entire Europe!!
Britain is just doing enough to save itself and be self sufficient!

STRANGER said...

When spending is more than earning, such situations are bound to happen. We can defer the adverse but not forever.

If I speak on our (India/Pak's) situation, we have been taught to save for the future by our elders but this is not the case with West. They spend first and then look around to recoupe. Today they are reaping what they have sawn in the past. We are fortunate to be isolated (forget share market which will bounce back soon).In reality, we are doing fine as our dealing is mostly in domestic market.

tariqmian said...

USAMA REHMAN!

Thanks for appreciating my analysis. I admire your back up on the issue.

Tariq Mian said...
This comment has been removed by the author.
Tariq Mian said...

STRAGER sahib,

I appreciate your comments.

You are right, they spend first and pay later.
It's kind of more difficult to keep up with payments, and then the silliness keeps building up till bankruptcy.

When spending is more than earning, credit cards and other bank loans are encouraged for "short term gain" followed by a long term pain leading to business outages, dissolution of marital relationships, having deficit financing for finishing the pending work by the governments etc etc and what not.

avecwings said...

tremendously informative!
Recession has indeed hit hard on many once strong economies...and its effects as u mentioned are being felt far and wide...

i got to learn a lot frm it.. would love to read some solutions to these problems 2...

Tariq Mian said...

@avecwings
I appreciate the feed back.

Recession is cyclical economic reality in a capitalism based economy.
Lack of economic strategy and uncontrolled spending using borrowed money is naturally disasterous.

Solutions are: Don't borrow, and try to live on what you have.

Anonymous said...

Borrowing costs should drop further as the economy is weakening. Surprisingly, here in Canada, some banks are already muscling up their sleeves to jack up rates on their own regardless of the prime rate set by the Bank of Canada.

Tariq Mian said...

@Stranger:
I just visited your web page, it was so unusally strange that comments were not allowed.

TheOneWhoNeedsReminders said...

many economists even feel that the worst is yet to come! informative post thanks for the info!

PS i am following your blog already :)

Tariq Mian said...

@ TheOneWhoNeedsReminders: Thanks for comment.

God forbid--The worst is still to come--isn't that a big scare?

Anonymous said...
This comment has been removed by a blog administrator.
Aly said...

There is some optimistic development as a better than expected U.S. performance data suggests providing a boost to the dying confidence.

Canadian exporters are happy as, 75 % of their products ends up south of the border.

Nevertheless, expecting 15,000 new jobs in Canada and about 50,000 in the United States does have some big asterisks.

Because in Canada, a large cohort of education jobs — mostly rehires from summer layoffs are likely to confuse the data.

38,400 new jobs in education sector can't be overlooked.

Palomasea said...

Hello, and thank you so much for your visit and kind and thoughtful comments! I so agree that helping others is one of keys to a happy life.

Your blog looks to be very interesting, and I look forward to reading more...

Thank you,
- Palomasea

Elliot MacLeod-Michael said...

That's exactly right, and bail outs are the last thing they need. Time will take care of this. Also everyone needs to stop pointing the blame at everyone else. Shit is childish. Recessions happen.

Tariq Mian said...

@Palomasea:
I appreciate your feedback
Thank you,

Tariq Mian said...
This comment has been removed by the author.
Tariq Mian said...

@Elliot MacLeod-Michael

Thanks for agreeing to my opinion sentence based on historical evidence-of-TIME as remedy.

R. Ramesh said...

thanks boss..n best wishes:)

Tariq Mian said...

@ R Ramesh:

So nice of you to become part of my team of intelligent critics.

The Golden Eagle said...

Interesting post. I agree, it does take time to get out of a recession.

Thank you for coming by my blog!

Deniz Bevan said...

Nice to have a Canadian look at these things!

Tariq Mian said...

@ The Golden Eagle -----

Thank you for dropping by.

Tariq Mian said...

@ Deniz Bevan
your visit is appreciated.

ted said...

Greek pensioners are scared of the incoming worst time for them.

Tariq Mian said...

@ted: Thanks

CREATIVE MIND said...

interesting post..!!

Nasnin Nasser said...

I would love to come back to this post for a detailed read...nice blog you have...it's good to have the current flavour for an informative read...:-)

Thank you so much for visiting:-)

Tariq Mian said...

@ CREATIVE MIND-----thank you so much.
_______________________________


@NASNIN NASSER:
I appreciate your valuable response.
_________________________________

Hamza Bin Ladin said...

Surely bailouts are not the ultimate cure for recessions.

Great post as always.
KUDOS.

Hamza Bin Ladin said...

Surely bailouts are not the ultimate cure for recessions.

Great post as always.
KUDOS.

tariqmian said...

@HAMZA BIN LADEN
Thank you bhai for remarks.

Palomasea said...

Thanks so much for your visit, Tariq!

- A great weekend to you,
Palomasea

IRFANUDDIN said...

How r u Tariq Bhai.....???

i know it has been a long absence of mine from blog world....just trying to get the pace back...

Regards,
irfan.

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Tariq Mian said...

Thanks irfan bhai.
Nice to see you around.

TARIQ said...

@Palomasea: -THANKS
Have a great weekend.

Prettylicious said...

Thanks for following me (= I`m looking forward to more of your posts!

Btw,Im now one of your official followers :)

Prettylicious said...

Thanks for following me (= I`m looking forward to more of your posts!

Btw,Im now one of your official followers :)

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