Wednesday, May 16, 2012

Global recovery robust, fears unfounded

Apart from the Eurozone, the major global economies, comprising more than 70% of GDP, are in various stages of recovery or bottoming out. However, the fear factor due to the situation in Greece has become so prevalent that the likelihood of a robust global recovery is being overlooked.

Consider this:


Slow but steady and consistent recovery is underway. With the quarterly GDP growth rate at 1.8% for Sept. 2011, 3% for Dec. 2011 and 2.2% for March 2012 quarters, it is evident that the recovery has been progressing at a steady pace. In fact, this resiliency and recovery of the US economy has surprised many people. All other indicators including unemployment, housing prices and mortgage delinquencies are also showing a steady recovery.


China’s GDP and business activity, which were on a steady downward trend, are showing signs of bottoming out. The Dec. 2011 quarter GDP at 8.9% and March 2012 GDP at 8.1%, although of concern, have to be looked at from the perspective of improving manufacturing activities and PMIs in the past few months. The last couple of months of PMI data show a renewed growth in business activity, and a bottoming out in progress. The view of the World Bank is that China would be able to engineer a soft landing and maintain an 8% growth rate.


GDP rose by 4.1% in the first quarter of this year, compared with a 0.7 % contraction in the final three months of 2011. PMI data indicates that there is a very sharp recovery underway.

These three countries represent nearly half the world's GDP - and they are doing pretty well.

And if you go down the list to countries like India, Russia, Brazil, Korea, Canada, Turkey, Taiwan and Hong Kong - all of them are in various stage of bottoming out or recovery. All these countries together comprise more than 70% of Global GDP.

The Eurozone and especially the larger economies like the UK, Germany, Italy and France are no doubt a concern - but they comprise just 15% of the world GDP, and Greece, merely a fraction of percent of Global GDP!