The views of this article are the perspective of the author and may not be reflective of Confessions of the Professions.
Signs of Global Recession in 2016
In 2008 recession hit most of the global economies; stock markets crashed and businesses failed. It has been a long, painful road to recovery, marked with several ups and downs; At times it may still seem like the recession is still a part of the economy; but in fact, recovery has happened and most economic indicators have returned to their pre 2008 recession days!
Unfortunately, the recovery has been helped greatly by government bail outs, huge injections of capital have made growth possible and a relaxed approach to monetary policies may actually be masking the bigger problem. These factors contribute to make an artificial growth in the economy and cannot be sustained forever. There are already signs that a new recession is looming:
Should we expect the collapse of the Euro-zone in 2016? Despite encouraging signs and statistics, the European debt crisis has been postponed but not solved. Countries which have been struggling, Greece in particular, have been bailed out by easing their debts over time. This bail out has come with conditions and these conditions are preventing these countries from experiencing true economic growth. Part of the issue has been created by the fear of how much damage the collapse of the Euro zone could do to the world markets.
China – the supply is outstripping demand China has been experiencing massive growth, they now have the second highest GDP in the world, only the USA has higher and many analysts believe that this will change in the coming years. The rapid increase in their economy has resulted in an increase of the numbers of Chinese with wealth; however, they have limited avenues to invest this new wealth and this is pushing the price of their stocks and shares sky high. This bubble is likely to burst with disastrous consequences for many o the investors.
In addition, China is rapidly building new house and even cities, which are not even needed yet! The real estate market will shortly correct itself as supply vastly outstrips demand and prices will crash.
Student loans may become impossible to pay The majority of university students around the world need a loan to enable them to survive through their educational years. However, as these loans are backed by the government they are assigned an A rating for credit purposes and sold between the credit companies. Unfortunately, many students will never be able to repay these loans and the credit companies could demand repayment in full from the government. The size of these loans, in the US alone, is over $1.2 trillion and could cause some serious issues for the treasury of the country.
Unemployment rates are increasing Statistics show that the unemployment rates have fallen over the last few years, as the market has recovered. However, studies suggest that many people who were previously in full time employment have taken part time roles to make ends meet. This has artificially decreased the rate of unemployment and; if taken into account when calculating unemployment, actually pushes the unemployment rate up; higher than at the peak of the recession.
Central banks The central banks usually use monetary policy to affect growth in the market. However, one of their key tactics is to lower interest rates; this is not currently a possibility as interest rates are already incredibly low and have been for several years. Without this tool at their disposal the Central banks have little hope of preventing another recession. Perhaps the most worrying factor that warns that another recession is on the horizon is how many trends are following the same pattern as pre the last recession. These signs include a reduction in retail sales, factory orders reducing, GDP growth slowing and even starting to decline, export rates reducing and corporation profits dipping.
All these events happen before the 2008 recession and are happening again now. Does this mean things could get worse? Does this mean that people will once again be laid off? 2016 is a month away, and whether we like it or not, a lot can happen until then. The above mentioned scenarios are estimates. Nobody knows for sure that they’ll happen, so we’ll just have to wait and see what the New Year has prepared for the global economy.
