Sept.14 : Is the world recession over? Are we witnessing what is often euphemistically described as the "green shoots of recovery" which are supposed to soon bloom into stalks, stems and flowers of prosperity? Is the worst really behind us and from now onwards, can the economic situation only get better? It is tempting to say "yes" to all these questions but the truth is that the near-term future is still fraught with uncertainty.
Whereas some positive signals are visible on the horizon, there are also strong reasons to believe that the upward movement in certain economic indices could be excruciatingly slow and gradual, that the recovery will not certainly be a "V" shaped one. What is reasonably certain is that creation of new employment opportunities would take place much after the financial sector has picked up and that jobs lost would not be regained over the next couple of years, perhaps longer.
It is one year since the fateful September 15, 2008, when Wall Street melted down with Lehman Brothers, Merrill Lynch and AIG (American International Group) simultaneously collapsing, triggering a near-complete breakdown in the working of the financial systems in developed countries. Iceland went bankrupt and countries started queuing up before the International Monetary Fund (IMF) for succour. Over the last 12 months, the economic environment has not actually improved — what one is seeing are merely indications of a brighter future that is hopefully not too distant.
In the month of August, private employers in the United States cut 298,000 jobs whereas 360,000 employees were retrenched in the month of July. In the first three months of the current calendar year, American employers had cut an average of 697,000 jobs each month. The total number of jobs lost in the US since the recession began in December 2007 is estimated at over seven million. At least a similar number of Americans have lost their homes in this period. Although the number of homeless individuals remained relatively stable between 2007 and 2008, the number of homeless families rose nine per cent and in rural and suburban areas, the number jumped by 56 per cent, according to a report released in early-July by the US department of housing and urban development. The report added that homelessness is concentrated in urban areas and among adult males: one-fifth of the total number of homeless people in America live in Los Angeles, New York and Detroit and roughly 1.6 million people used an emergency shelter between October 2007 and September 2008, a third of them as families. Even if the number of job losses in the US fell to its lowest level in a year in August, the unemployment rate at 9.7 per cent was its highest level in 26 years, that is, since June 1983. A Reuters survey indicated that most big banks in America that do business with that country’s Central bank, the Federal Reserve, expected the jobless rate to peak by the first quarter of 2010 — in other words, as far as employment in the US is concerned, the worst may not be over.
The IMF has revised its forecasts for this calendar year and the next one, but only just. The IMF said the world economy would shrink by 1.3 per cent during 2009 instead of 1.4 per cent forecast in April, For 2010, the Fund has upped its growth projection from 2.5 per cent in April to 2.9 per cent in September. Should the IMF’s prognostications be taken seriously? The recent track record of this venerable body with close to a thousand economists on its payroll does not exactly inspire a great deal of confidence.
Here’s why. The following are the growth estimates made by the Fund for the US economy over the last 15 months for the current year: 0.6 per cent (April 2008), 0.1 per cent (October), (-) 0.7 per cent (November), (-) 1.6 per cent (January 2009), (-) 2.8 per cent (April) and
(-) 2.6 per cent (July).
The United Nations Conference on Trade and Development (UNCTAD) was more pessimistic in a report released on September 7 wherein it predicted that the world economy would contract by 2.7 per cent in 2009. The report stated: "The economic winter is far from over: tumbling profits in the real economy, previous over-investment in real estate and rising unemployment will continue to constrain private consumption and investment for the foreseeable future… Even economies that will grow this year, such as those of China and India, are slowing significantly compared to previous years…"
The fact is that the financial upheaval that is yet to run its full course has left deep economic scars on most countries in the world and most knowledgeable observers are more circumspect than before. On September 5, 2009, at the meeting of finance ministers and heads of Central banks of the Group of Twenty countries — actually, 21 developed and developing countries and representatives of nine international institutions — in London, Britain’s finance minister Alistair Darling had remarked, "People are at risk of saying the job’s done, now we can throttle back… We’ve made those mistakes before — most notably in America in the late 1930s, called it wrong and got themselves back into a recession again".
The UNCTAD report added that the ongoing crisis is "unprecedented in its depth and breadth" leaving virtually no country unscathed. It pointed out that what were perceived as the "green shoots" of recovery were improvement of specific financial indicators from lows touched in the first quarter of 2009, falling interest rate spreads on emerging market debt and corporate bonds and the rebound in the prices of certain securities and commodities.
The short point is that it is early days to start partying. The worst may indeed be over but the road ahead is surely arduous. The world and the international capitalist system may never be the same again. You may tell your grandchildren that you lived through 2009 and survived — barely!
Paranjoy Guha Thakurta is an educator and commentator
Paranjoy Guha Thakurta
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