Wednesday, May 7, 2008

Recovery a Fantasy

Any thoughts about an economic recovery (US as well as India ) is unfounded , in spite of some positive numbers in US economy and price control measures by Indian Government.

US is reporting slightly positive numbers for wage productivity and there are comments from quarters like the Treasury Seceratery , Merril Lynch that the worst is over..

However folks like Morgan Stanley and Prof. Nouriel Roubini strongly believe that the worst is yet to come. I second that opinion And here's the reason why :-

-Oil at $ 120 (and rising) and rising coal prices will put a dampener on growth across the globe.

-Rising food prices will continue to impact consumption demand across the globe.

-In the US, housing prices still have a 'bubble' element remaining. Unless that corrects, recovery will not begin.
-That housing price correction will severely impact the financial sector in forthcoming quarter.

-In US, consumer debts (credit card, card, student loans) have risen far above expectation this month. Indicative of the squeeze on the general population. Auto loan sector too has a bubble similar to housing, that needs to unwind

-US store sales results today evening are likely to be not as bad as projected, but that would have been driven by huge discounts , impacting the net profits of retailers.

-Other major economies of the world i.e. UK , China and Japan in varying degrees of slowdown.

-In India, the oil price losses being absorbed by oil marketing companies is a time bomb waiting to burst.

-Real estate in India still expected to correct (overall basis) by another 20-30%

-The worst impact on India likely to during the last 2 quarters of this year.