Dear World: This is not Recession!


A lot of people around had given up the hope that world is going down with recession after US was downgraded in last week from AAA to AA+. Yes, the stock markets have responded strongly as they have plummeted back to 2008 trends. But if you look around, you will soon understand that this is NOT beginning of Recession.

Before to the increase in the debt-ceiling and the associated austerity measures, US was the only country that was actively trying to stimulate its economy.

On the other hand European fiscal policy has been focused on hawkish policies as the solution for the various sovereign debt problems.

The emerging markets now seem to be in a war between tight monetary and loose fiscal policy, If tight monetary policies win then it is likely that unemployment will increase as the economy slows. If loose fiscal policies win, then it is likely that inflation will increase.


So how is this not weak fundamentals?

US corporations are now the key!

US has strongest corporate fundamentals with highest percentage of positive earnings and revenue surprises in the world.

Although one might argue that it is simply global growth that is causing such strong profitability in the US, one should note that those with little or no foreign exposure (US Small) are producing abundant surprises as well!


It is well known that the monetary and fiscal policy of United States is driving the markets. Globally markets are reacting to fiscal policy changes in US.

Although we see so much volatility in global market due to changes in central bank policies or currency intervention, it appears that US corporations and their strong balance sheets will determine the fundamentals of global financial markets.

One quick check on this can be Dollar has not yet depreciated in spite of this mayhem (in fact it peaked at INR 45.40 today)

India’s fate?

I think India has, over last few years, doubled the Current Account Deficit from pre recession era (from 1.2% to 2.5%), inflation hovering around at 8.5%.

One could observe that Gross Domestic Investment (35% of GDP) has remained intact even after huge blow in 2008.

India’s actually been a big outperformer over the last 6 months (if you strip January from the average). This does suggest India’s ‘more domestic, less global demand’ positioning does work.

So if you remain worried with the developed world, India isn’t a bad place to be…

Would love to hear your views?

  1. ghosh says

    Recession or not the world is in for a very tough time. The US situation is going to get much worse than they are now. Taking into account their costs of medicare and social security it could be as high as 50 trillion USD. The EU situation is equally bad. To get out of this situation the govt is left with few alternatives, cut spending, print more money. No politician in his right mind would cut print more money is the only alternate way left. And hope to inflate the debt away. Obviously if US were to print more money QE4, 5, 6 then other nations too will have to follow suit so as to keep their currencies and their exports competitive. 

    1. Rishabh Bhandari says

      Yes. you are right in someway with respect to Quantitative easening. But I strongly feel, developed countries will have to cut spending. We’ve already seen how Greece is compelled to follow austerity after EU bailed it out.

  2. Vijay Sharma says

    I think we are heading towards double dip recession or rather we are already into it just that we don’t wnat to accept it. Unbelievable prices for commodities, Huge volatility in stock markets, weaking dollar and rupee they all are indicators of recession.

    1. Anonymous says

      Vijay, Inflation & high commodity prices have been around for last 12 to 18 months… -that does not necessarily mean we are in recession – infact, it is a sign of overheated economy or hyper growth! Stock Market although linked with general economic growth has many other reasons to be volatile.

      I actually agree with the author here – I firmly believe that we are not in recession right now !

  3. Hemanshu Desai says

    If exports are growing at 30%+, 80% at last check, global demand is not slowing. In bad times, advanced economies buy more cheap Chindian stuff, not less.

  4. Hemanshu Desai says

    If exports are growing at 30%+, 80% at last check, global demand is not slowing. In bad times, advanced economies buy more cheap Chindian stuff, not less.

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