Globonomics!

Consulting|Technology|International business

Technically, what is a recession?

leave a comment »

There is so much talk of the world’s most misused word i.e. recession. When can we exactly use the term recession?

Well, put in simple macro economic terms, a recession is an economic indicator of two successive quarters or more of negative GDP growth.

Now, so, technically speaking, is the US really in a recession? Not yet. Odd’s of recession have been raised – most definitely and there is no denying that. Most economists from leading Wall Street firms such as Morgan Stanley and Merrill Lynch predict that the recession has already begun late last year! Of course, I don’t read too much into what the doomsday predictors say anyway as they change their viewpoints – what were they doing all this time to predict or pre-empt this from coming? Why did no one see this coming? Its easy to say “I knew it would go into a recessionary trend” – its another thing to predict it – unfortunately we still don’t have the tools to perform such an analytical calculation.

Put in more objective terms, there is no magic sphere to tell us when these economic booms and busts occur. Yes, we all saw this coming since almost 1 year now with the US housing collapse triggerred by the sub prime defaults that in turn, led to a major credit crunch for most financial institutions. In fact, if you look at why I started this blog (https://ecofin.wordpress.com/2006/10/17/reasons-for-me-to-dig-deeper-into-the-economic-fundamentals-of-the-world/), this was my primary objective – to preempt such recessionnary trends and whilst I have been aware of the housing collapse and have written about them in past, I personally feel I myself underestimated this – though I did sufficient research on this topic. Its not just me – great economists and bankers did not see this coming! Greenspan is accused of fuelling this housing bubble. India is actually in a similar housing bubble. Lets see how it pans out here.

Now, I am keen on examining the results of the 1st Quarter of US economic data. What do I want for my analysis? US housing data, US GDP, US non farm payroll and US unemployement data, US WPI, US CPI, US Interest rates, US Dollar value against major currencies such as the Euro, the Yen and the Swiss Franc, direction of US/European/Japanese/Indian/Chinese/South East Asian markets stock markets, European data akin to that mentioned above.

Why I say stock markets in the APAC region is because those companies do business with one another and also export heavily to the US and Europe and they cannot be immune to any global economic slowdown. In fact, I read somewhere that the Indian GDP growth that has been steamrolling at over 9% pa is predicted to dip to 7% if there is a recession in the US that lasts for over 3 quarters in 2008. Its got to be seen. Also, the mood of the participants at the World Economic Forum at Davos is quite bearish this time around.

Only when I have the above data can I as an economist claim that the US is technically in a recession.

Right now, what we see are only recessionary trends. This should not be misconstrued as a “recession”.

I am also very curious to know how Alan Greenspan’s (http://en.wikipedia.org/wiki/Alan_Greenspan) successor, Ben Bernanke (http://en.wikipedia.org/wiki/Ben_Bernanke) handles this recessionary trend. Greenspan was a seasoned economist and he, in his capacity as Fed chief, knew how to control the last recession when it occured in 2001 when he played a soft landing for the US economy when he played around with the interest rates and macro economic policies. Remember then, Japan was in deflation, Europe was in recession as well. Will this occur again?

In believing with the famous Infosys adage, In god we trust, everyone else bring data to the table.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: