Global economy shrouded in gloom

Tue, 7 Sep Pre-Open

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It has been nearly two years since the global financial crisis intensified and impacted almost all economies across the globe. And today, the developed world is still not better off in any way. True, the scenario has not deteriorated as rapidly as it did in 2008. But then there has hardly been any recovery to speak of.

There are many instances that point out a sustainable recovery has still managed to elude the US and Europe. For starters, the huge stimulus measures that were announced by various governments with much fanfare have delivered results only for the short term. Moreover, these measures are now winding up. And so there are fears of the economies once again slinking into recession.

Infact, what these stimulus packages have done is that have created a serious long term problem. That of rising deficits and debt. As a result, many of the European economies have been compelled to go in for austerity measures. These measures are expected to dampen growth in countries where growth has not really taken off in the first place. Another factor that is hurting Europe is the Euro. Despite various problems plaguing the region, the euro has been high in purchasing parity terms (PPP) as compared to the US dollar. The fact that the US itself is mired in recession is most likely the main culprit for this. The picture in the US remains as bleak as ever. The real estate sector, where the seeds of the crisis were first sown, continues to be in the doldrums. Unemployment in the US has not really eased. Infact, many European pockets are also seeing unemployment levels shoot up.

The global economy has then turned its attention to India and China to spur growth. In this regard, both economies have not failed to please. Both the economies have recovered nicely and are growing at a strong pace as the latest GDP numbers show. But Chinese economy is also fraught with problems. For starters, its economy is highly exports dependent. And so, unless the West recover, Chinese exports could continue to falter. Moreover, the property prices have zoomed in China. It has raised concerns of a bubble bursting there. India's growth story from a long term perspective looks good. Although it has two main problems to tackle. One is bringing inflation down to acceptable levels. The other is to reduce its fiscal deficit.

Overall, most noted economists have warned of a 'double-dip' recession in the global economy. What will be the best solution to this deepening crisis is one that is likely to flummox governments for some time to come.