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How badly is the economy doing?

Let us look at the numbers to get some perspective. Based on the latest data, the business confidence is now at the lowest in 26
years in Germany, exports have plunged by over 7.3% in the fourth quarter causing the Europe's largest economy to contract the most in over 20 years; the job-less rate in the 16-nations' Euro region is now over 8.4%, the lowest growth seen in decades; the UK economy reporting the lowest growth since 1980, unemployment at the highest in 16 years, consumer confidence the lowest in over three decades in the UK; the US economy shrinking by 6.2% in the fourth quarter, the worst growth since 1982, unemployed reaching the highest since 1992 rising to 7.6%; Japan's exports plunge by over 45% in January '09, GDP growth rate fell by over 12.7% annually, the highest since 1974; we are seeing export oriented economies including of Singapore, Korea, Taiwan, Nordic region along with others fall into deeper recession.

The economies like Brazil, China, India, Russia and others who were supposed to be resilient to the global economic downward are now under pressure too. The news from Brazil, India and Russia are not very encouraging. Brazil's unemployment rate has now jumped to the highest in over 8 years; the growth rate is at lowest since 2003. India (Asia's 3rd largest economy) grew at the slowest pace since 2003. Russian retail sales grew at the slowest pace in more then 10 years, the GDP may contract by over 2.2% in 2009. Chinese government will also have to revisit its 8% growth target. Though there are some signs that the Chinese economy might be recovering after Beijing implemented the US $ 585 billion stimulus package; however, it is too early to tell whether the positive numbers are temporary or unclear seasonal numbers. There is a strong possibility of China not growing above 7% in FY '09.

The list of bad news is getting bigger. In short, the recent numbers paint a pretty grim picture of the health of the economy, and there are no reasons to assume that the worst is over. The global economy is still hurting. World economic growth outlook for 2009 is very gloomy indeed. It is difficult to envisage a global recovery without the US economy getting back on the growth trajectory. Although, we expect the US $ 787 billion stimulus package will help the US economy going forward, there are no reasons to assume that the economic conditions will improve in H2 of 2009.

Is the government taking too much risk?

Taking the above into account, one can't help but wonder is relying on future tax revenues to keep bailing out banks and financing stimulus packages a good idea? Especially when you consider that there is too much uncertainty about the growth prospect of the economy.

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Sanjeev Kumar is Chief Executive Officer of Delamore & Owl Group of Companies (Website: www.delamoregroup.com), Toronto, Ontario, Canada. He holds dual Master's Degrees - one in Business Administration and another in International Finance. He has been the recipient of the "Southeast Asia Young Achiever's Award" for Year 2002.
Article posted on March 14, 2009.