In May 2013, the talk among the global leaders was that they have broken the back of economic slowdown. They said that the green shoots of recovery was visible everywhere and all are set to go with the global GDP touching 3.2 percent for FY 2014. But now their outlook has changed. The OECD is now predicting 2.7 percent for FY 2014 and 3.6 percent for FY 2015. There could be a number of reasons as to why OECD has revised its projections downwards.
First, the fiscal stimulus of Yester years of the US, Britain and UK are all slowly coming to an end. This would mean increasing interest rates, higher cost of borrowing and lower consumer demand.
Second, there is a talk that the fed may lower the interest it pays to banks (reverse repo) on the excess reserves they hold with them to encourage them to take it out and lend. However there is very little conviction that it will work.
Third, the QE helped all the stock markets to gain. Once the tapering starts the market indices may fall and this will create net wealth effect
The current slowdown in the emerging markets, the recession that is in the offing in the peripheral euro zone countries and the effectiveness of continued quantitative easing are all indicative that we are heading for a new recession. This time around we need new approaches and new solution to get out of this rut. Austerity around the world, low consumption and investment will bring in new reality. The employment picture around the world will be scary. The current data in Europe shows the highest incidence of unemployment among the young is threatening the economic stability. If it persists it will shake the nations social stability with major social unrest. Are the central bankers ready to tackle the situation. Only history will tell.
We in India suffer from severe policy paralysis. We are busy fighting with each other. There is no vision as to achieve and mission to undertake. Who really knows what is the level of employment, unemployment rate and underemployment rate? We look to destiny for an answer.