Economists foresee global recession

By Batuk Gathani

BRUSSELS, DEC. 1. The current perception of some Western economists would suggest that the risk of global recession could rise amid indications that prospects of the U.S. economy's ``soft landing'' may be rougher than expected.

All this has triggered a sort of eerie nervousness in financial markets, as prominent fund managers in Europe are opting for higher cash positions. Many are nervous about volatile stock markets with first signs of slowing down for the so-called ``new'' economy. The current European cash levels are at their highest point since the market melt down in 1998 triggered by Asian cash crises. The fund managers are sitting on cash piles as they look for long-term strategic bargain stocks. According to media reports, some of European investment firm's equity funds have as much as one fifth or 20 per cent of their assets in cash. On the investment front, apart from old economy value stocks, biotechnology is still rated as a favourite sector as most investors and fund managers are scared off by the recent rout in technology shares.

Some fund managers feel that such a scenario in conventional stocks could be repeated with depressing news from Asian markets, where most stock markets closed lower on Wednesday, led by the decline in technology and telecom shares. Most Asian companies are still seen mired in debt from the financial crises of three years ago.

The latest data from U.S. Commerce Department indicate that the country's economic growth has slowed - 2.4 per cent in the third quarter and is at its weakest pace in nearly four years. Hence, analysts are revising their economic growth prospects for the economy in 2001, which could be well below three per cent. This is rated as both delicate and dangerous level, as it could trigger a wave of unemployment. A 1 per cent drop in U.S. growth rate may lay off between 800,000 and one million workers.

This news has prompted a growing number of economists to argue that the risks of global recession are at their highest point in several years and rising rapidly. Prominent analysts feel that the economic and fiscal outlook in Asia may also be deteriorating. The International Monetary Fund was today quoted as saying that its recent estimate of 6.6. per cent growth in Asia next year was probably too optimistic and it is argued that with the prospects of economic slowdown in the U.S. and Europe, the Asian growth rate could be knocked down by several points.

In January 1996, Germany faced an economic standstill with the first signs of Europe's ``locomotive'' economic power faltering in the background of depressing statistics. The overvalued d.mark then and the high German social security costs added fuel to the fire. A leading French bank and American investment banks were then quoted as saying that the German currency is overvalued by as much as 25 per cent against the dollar. Four years later today, the tables have turned, as the d.mark has depreciated by almost a third against the dollar.

The d.mark is being replaced by the euro as a global trading currency.

The ironical twist of current uncertainty is that the potential beneficiary of the depressed U.S. economic outlook may be the euro.

Send this article to Friends by E-Mail

Section  : International
Previous : U.K. lowers homosexual age of consent