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Recession redux?
With Stress in European financial markets continuously getting worse amidst talks of bailout packages for greece, a sustainable solution is yet to be found. Real economic indicators are not yet indicating a recession, but markets remain unsettled due to deteriorating sentiments and speculations about the future of the European union.
Issue Date - 08/12/2011
Crisis beyond EU

Consistent with the other large industrialised European countries, UK’s growth has slowed down considerably in the second quarter of the year. There is little doubt that fundamentals in the economy are not very strong, but it has also been hampered by global macroeconomic environment. The European debt crisis or the fear of it is also adding to the existing bad sentiment. Confidence in global growth has waned. Consensus forecasts for GDP growth have declined across the industrialised world. The Deloitte Stress Index is also showing the highest reading in the last two years. Real personal disposable incomes have declined by around 3% yoy, the sharpest decline since 1976. Even the optimism in UK’s CFOs has dipped to levels seen during the recession in early 2009.

US under risk

During the global economic downturn of 2008-09, manufacturing in US went down by 15%, the highest decline since World War 2. In late 2009, it recovered significantly from depressing levels, but it is again fading in 2011 due to natural calamities in Japan and a poor domestic demand. If US businesses have been able to post record profits, it is all because of their strong overseas operations, but any recession in Europe can make its dent on the prospects of American businesses as slowdown in exports to Europe will slow down overall manufacturing. It seems like a turn of tables. In 2008, it was US that brought recession to the world. Now, Uncle Sam is hoping that the ensuing debacle in EU doesn’t precipitate a crisis in its economy.


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