Feb1 : When will the worldwide recession end? When will the economies of nearly 200 countries on the planet revive? Will this take place during 2009 or is such a possibility unrealistic? Will India’s economy revive prior to the rest of the world? Once the economies of the West turn around, will India bounce back swiftly and with greater vigour?
These questions are being raised repeatedly. And while no one really knows the answers, opinion is divided between optimists and pessimists about how long the recession will last. On two issues, however, there is a reasonably broad consensus among economists: first, 2009 is going to be a pretty terrible year and secondly, the worst is not yet over.
On a single day (January 26), some leading multinational corporations (including Caterpillar, Sprint, Philips, Texas Instruments and ING) announced that a total of 70,000 employees would be losing their jobs in the United States and the United Kingdom. Two days later, the Geneva-based International Labour Organisation (ILO) stated in its annual Global Employment Trends report that the ongoing economic crisis would lead to a "dramatic increase in the number of people joining the ranks of the unemployed, working poor and those in vulnerable employment".
Based on new developments in the labour market and "depending on the timeliness and effectiveness of recovery efforts," the report states that global unemployment in 2009 could increase over the level prevailing in 2007 by a range between 18 million and 30 million workers, and by more than 50 million if the situation continues to deteriorate. The ILO report argued that in the last "worst-case" scenario, some 200 million workers, mostly in developing economies, could be pushed into extreme poverty.
Just in case there were some who would view the report as exaggerated, the director general of the ILO Juan Somavia categorically said: "The ILO message is realistic, not alarmist. We are now facing a global job crisis. Many governments are aware and acting, but more decisive and coordinated international action is needed to avert a global social recession. Progress in poverty reduction is unravelling and the middle class worldwide is weakening. The political and security implications are daunting".
The ILO report added that "the number of working poor, namely, people who are unable to earn enough to lift themselves and their families above the $2 per person, per day, poverty line, may rise up to 1.4 billion or 45 per cent of all the world’s employed". In 2009, "the proportion of people in vulnerable employment — either contributing to the family income or own-account workers who are less likely to benefit from the safety nets that guard against loss of incomes during economic hardship — could rise considerably in the worst-case scenario to reach a level of 53 per cent of the employed population".
The report notes that in 2008, the highest unemployment rates were recorded in North Africa and West Asia, followed by Central and South Eastern Europe (non-European Union), the Commonwealth of Independent States, Sub-Saharan Africa and Latin America. The lowest unemployment rate was observed in East Asia, followed by South and South-East Asia and the Pacific. The report indicated that the three Asian regions accounted for 57 per cent of global employment creation in 2008.
But even if "resurgent" Asia remains the fastest growing part of the world, countries like China and India will not be able to lift the world out of recession because the rate of growth of these economies has slowed down considerably and may decelerate further. For information on this topic, one could turn to the latest set of projections made by the International Monetary Fund (IMF) — it came out the same day the ILO report was released — that has been systematically lowering its growth projections since April 2008.
In April last year, in its World Economic Outlook report, the IMF — with its battalions of so-called economic experts and analysts — claimed that the world economy would grow by 3.1 per cent during 2009. This projection was revised downwards to 3 per cent on October 7, 2008, then to 2.1 per cent on November 6, 2008, and now to 0.5 per cent on January 28, 2009. On these four occasions, the projected rate of growth of the US scaled down from 0.6 per cent to 0.1 per cent, then to (-)0.7 per cent and is at present at (-)1.6 per cent. The IMF’s projections for India have come down from 8 per cent to 6.9 per cent, 6.3 per cent and 5.1 per cent in the last 10 months. Though the IMF projections are for calendar years, the last-mentioned figure is far lower than the Indian government’s claim that the country’s economy is expected to grow by seven per cent during the current financial year that ends on March 31, 2009.
According to a recent study conducted by Team-Lease in the country, the net business outlook — or the difference between the number of respondent firms who see an increase in their business and the ones who expect a decline — has collapsed from 50 per cent in the first quarter of 2008 to six per cent in the first quarter of this year. The net employment outlook in the study has also come down significantly, indicating that fewer firms intend to hire more employees in the coming three months.
The ILO report has recommended that governments in countries with high levels of joblessness undertake programmes for construction and rehabilitation of public infrastructure such as roads, bridges, schools, hospitals and public buildings to help ease the impact of recession — a prescription that would have been wholeheartedly endorsed by the late British economist John Maynard Keynes.
What is the Indian government waiting for? For the Election Commission to announce the dates of the general elections so that the model code of conduct becomes operational? Time is indeed running out for the incumbent regime.
Paranjoy Guha Thakurta is an educator and a commentator based in New Delhi
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