Are We Facing a Recession?

Global GDP Rate Year 2007 have seen economic expansions globally within all parameters like technology, financial services, IT revolutionand emergence of new smaller economies alongside one of the worst financial crisis to hit the sector, the US led subprime mortgage market collapse.

The New Year 2008 has arrived with new hopes and investment return goals amongst investors who have faced much challenges in the previous year confronted with market volatility and subprime related downturns eroding some of their investment returns. The performances of the global equity markets have been variable among the emerging markets and the US markets. The year 2007 has been marked by financial turmoil’s affecting stock markets globally, reducing returns, increase in interest rates and reserve ratio for banks, crude oil price shock, commodity and inflationary pressures, higher energy costs propelling inflation in China, Vietnam and elsewhere. A look at the global GDP trend gives an idea how economies grew in the last year.

Balancing higher food costs and meat shortage has been quite challenging for the Chinese central bank which raised interest rate thrice last year. In fact, according to Bloomberg,in China, inflation outstripped returns on bank savings prompting people to diversify into stock markets that created bubble and fuelled inflation and asset price rise further with the SCI-300 climbing 133% last year. China also became the largest contributor to global growth (15.6%) surpassing US (15.4%). But it also left Asian markets more vulnerable and prone to a global exports slowdown should the US face one such this year. Analysts have their fingers crossed and thoughts swinging whether we will face a global economic recession exported from the US, or a pseudo-slowdown that would brush close through the coastline. It seems to be that the markets will tend to be more volatile this year as widening credit market losses could swing the balance one way other. Asset allocation and portfolio diversification is going to gain much importance in lieu of market volatility. According to data published, average annual compounded return of American stock markets from 1926-2006 has been around 10%, and it’s the emerging markets that provided much gain and momentum to returns in the last two decades.

Recent account in Bloomberg about manufacturing growth slowing down in the Eurozone suggests that there has been some real concern about a global recession.

Right Horizons Desk.

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