Persistent slowdown pushing several sectors to recession

New Delhi, Aug 13 (IANS) Global stock markets are falling, gold price are touching life-time highs and the inversion of bond yield curve is signalling a possible global recession in the near future.

India on the contrary is far from a recession but the slump in sectors such as capital goods, auto, cement, mining and construction are more susceptible to recession as these have seen contraction in growth for the past few months.

A sector is said to be in recession if there is negative growth in two consecutive quarters. Several of the sectors have already reached that stage or are close to entering recession.

Auto sales have seen a decline for the past several month with the latest July figures showing that these have fallen by 19 per cent. The fall is even acute in passenger car segment where sales declined by close to 37 per cent in July. A falling demand and poor health of NBFC are prime reasons for this decline pushing the industry to seek a separate package from the government.

Similar developments is being seen in the real estate and construction segments. Dwindling demand and project delays have put the sector on the brink of bankruptcy with several promoters already facing insolvency proceedings.

As a corollary to this, connected sectors such as cement has reached closer to entering a recessionary phase. Cement production has witnessed negative growth for the past few months and industry representatives suggest that a pickup at this juncture looked difficult in the absence of government support to investment in infrastructure sector.

Several other industrial and commercial sectors are also witnessing consistent decline. The mining industry is facing a slowdown and according of Federation of Indian Mineral Industry (FIMI), unless government incentivised mining through tax sops such as lifting of export duty, the sector would go down deep into depression leading mine closure and loss of thousands of jobs.

A direct result of persistent slowdown has been sluggish performance of the capital goods segment. Investment by capital goods sector is important to push up industrial activities, increase manufacturing and roll out products that further expands the economy.

But slow demand conditions and the lack of private sector interest in fresh investments has put the sector under acute stress. Slow growth of infrastructure sector has also contributed to pushing capital goods industry on the brink of recession.

Economies globally are showing signs of acute weakness and the next stage could be a worldwide recession, if Morgan Stanley is to be believed, in nine months from now.

Escalation in trade tension between the two largest economies -- US and China -- is the chief factor nudging the world economy towards a recession. Further, Bank of America on the basis of recent data said a greater than 30 per cent chance of a recession in the next year.

But in light of the GDP figures questioned by several economists and experts on the counts that it does not reflect the fall in investment, export, import and credit in the Indian economy, how far can we shun the fear of a recession?

Not to forget the unemployment is at a 45-year high.

A recession is characterised by falling levels of investment and rising unemployment, all of which constituted the 2008 financial crises. A severe form of recession is called a depression, the last the world saw in 1930 -- known as the great depression.

Warning signals are also coming via another historical indicators of recession: the bond yield curve. The yield curve has typically inverted before recession and it is now nearly similar to what was seen ahead of the 2008 financial crises.

A far greater threat of recession hangs over UK's economy and other European economies. Political uncertainty owing to Brexit led its second quarter GDP to contract, raising fears of an imminent recession.

Possible counter-measures are being taken by global central banks. India cut the benchmark policy rates by an conventional 35 basis points, New Zealand cut it by 50 and Thailand also by a surprising 25.

The Federal reserve also slashed the policy rate by 25 basis points, however it did specify that the rate cut was a "mid-cycle adjustment" and not necessarily the beginning for a rate cut cycle.

(Ravi Dutta Mishra can be contacted at [email protected])



Source : ians

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