Is the global recovery set to begin?

The worst is over for the global economy and a recovery is likely to begin later this year, says a bank report released here.

The global economic crisis has bottomed out and positive indicators have begun to emerge, said the report by the Royal Bank of Canada which is the top bank in the country. It said there were encouraging signs for global recovery as the US economy was showing signs of recovery after worst-ever declines in its GDP in the last quarter of 2008 and the first quarter of 2009.

Thanks to low interest rates, an easing in credit crunch and Obama's fiscal stimulus package, the US housing market is already showing some stability, it said. This, coupled with rising consumer confidence, hints at a moderate recovery for the US economy by the second half of 2009, the report said.

"The benefits of significant fiscal and monetary policy stimulus (in the US) are starting to have traction," said RBC chief economist Craig Wright. He said, "There is an unprecedented amount of money bolstering the world economy."

"What we will be watching is the impact this spending has on labour markets, as well as household and business confidence. The degree of impact will be a crucial factor in shaping economic recovery."

Though the recession has thrown six million Americans out of jobs - pushing the unemployment rate to a record 9.4% in 25 years, the recent data suggests that this rate has started declining, the report said.

It said home sales in the US are also poised to pick up as affordability improves.

But the most potent indicator of the onset of recovery was that US consumer spending has increased after six months of decline.

This trend will continue in the second half of 2009 because of low interest rates, firmer credit markets and fiscal stimulus, the report said.

About Canada, the report said its economy will shrink by 2.4% this year. With over 360,000 jobs lost nationwide since October, consumer confidence will remain low as the unemployment rate peaks at 9.2% by the end of 2009.

The report forecast that the Canadian dollar, which has rallied 15% since March, will hover between 85 to 92 cents US for the remainder of this year.

Agencies

India to emerge strong from the global meltdown

The report said India, along with China, Russia and South Korea would emerge stronger from the global financial crisis as they enjoy strong economic foundations, higher growth rates and sound monetary policy measures.

US, China and Japan were ranked first, second and third respectively.

India ranked 19th in terms of budget balance as a percentage of the gross domestic product (GDP) and 12th in terms of public debt as a percentage of the GDP.

The ranking was based on seven economic indicators: size of the economy, spending power, tax structure, interest rate policy, budget balances, debt burden and foreign exchange reserves.

Oil could plummet down to $25 a barrel!

Oil prices are likely to keep falling until well into next year and could reach $25 a barrel before recovering, US bank Merrill Lynch. In a research report published on Thursday, it said oil prices should begin to rally in the second half of 2009.

Merrill Lynch recently cut its forecast for the average price of US crude oil futures and North Sea Brent crude oil to $50 a barrel from a previous estimate for both crudes of $90.

"With demand vanishing across all key oil consuming regions, benchmark crude oil prices continue to plummet," it said. "In the short-run, market participants will focus on both OPEC and perhaps even non-OPEC producer responses to balance the market."

"A temporary drop below $25 is possible if the global recession extends to China and significant non-OPEC production cuts are required," it said.

"In our view, oil prices could find a trough at the end of Q1 2009 or early Q2 2009 with the seasonal slowdown in demand. Then, as economic activity starts to strengthen, we see oil prices posting a modest recovery in the second half of 2009."

Oil prices hit a peak above $147 a barrel in July but have fallen more than $100 since then as the severity of the global economic downturn has become clear.

Merrill Lynch said a combination of high oil prices and high leverage had proven dangerous for the global economy.

"On October 1, we lowered our average crude oil price forecast in 2009 to $90 per barrel based on a global GDP growth forecast of 3 percent. Since then, our economists have revised their 2009 global GDP growth forecast down to 1.3 percent, a scenario consistent with a global recession.

"As a result, we are now lowering our average WTI and Brent crude oil price forecast to $50 per barrel for 2009."

It said the major downside risk to its price forecast would be a revision of economic growth assumptions for China, which are currently at 8.6 percent for next year.

"In the short-run, global oil demand growth will likely take a further beating as banks continue to cut credit to consumers and corporations," it said. "We now expect an outright contraction in global oil demand in 2009."

Source: Economic Times

'India will remain second-fastest growing economy'

India faces a difficult situation because of the global financial crisis and may even witness a slowdown, but its economy was nowhere near a recession, Finance Minister P. Chidambaram said .

'A recession is defined as two successive quarters of contraction of GDP (gross domestic product). I wish to emphasise that India is nowhere near a recession,' Chidambaram told the annual Economic Editor's Conference.

He said the financial crisis that has enveloped the world since 2007 had become worse with many rich nations like Germany, Japan, Britain and the Netherlands officially in recession, and many more, including the US and France, expected to join them soon.

'In our view, we may expect a moderation in growth rate in the current year to a level between 7 and 8 percent. But India would still be the second fastest growing, large economy in the world,' Chidambaram added.

India still faces a difficult situation, he said but promised every possible fiscal and monetary measure to contain the impact of the global crisis on the domestic economy.

According to the finance minister, sectors like manufacturing, communications, trade, agriculture and construction that have been the major drivers of the Indian economy in the past, were likely to see a moderation of growth.

As a result, India needed more investment and quicker implementation of projects covering roads, ports, airports, power, education, health and skill development to spur growth, he said.
'Increasing expenditure in the infrastructure sector is an important part of the counter cyclical measures that are being contemplated to address the impact of the global slowdown,' he said.
'On the whole, the general outlook continues to be one of cautious optimism.'

Chidambaram also said that while the previous National Democratic Alliance (NDA) government was claiming high economic growth rate during its regime, the reality was far removed.
'At best, the growth rate during that period was modest. In particular, 2002-03 recorded the lowest growth rate after the beginning of the reforms in 1991-92,' he said, while listing the growth rates since 1997-98.

'As a consequence, the growth rate in 2003-04 appears impressive. But what is important is the average for that period. The average was only 5.7 percent.'

The finance minister said India's external sector, too, continued to be robust and reflected the strengths of the economy in 2007-08. 'In the current fiscal, merchandise trade data is available for April-September 2008. Exports and imports have registered an impressive growth of 30.9 percent and 38.6 percent, respectively,' he said.

He said there was a deceleration, but that was being addressed by diversifying exports to other markets. 'For example, during the first quarter of this financial year there has been an increase in the share of India's exports to China, Singapore, the Netherlands and Saudi Arabia.'
Source: Agencies