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2016 caught in 8-year cycle of recession?

Tue, Jan 12, 2016, 12:20 PM
Has 2016 been caught in 8-year cycle of recession? Yes, say experts on economy.

Recession is coming. Like in 2008, when recession shook the world, the 8-year cycle is going to catch up with 2016, according to the experts.

The recession cycle is like a ball. You throw the ball at the wall, it will rebound.

Ruchir Sharma, financial analyst of Morgan Stanley, believes another recession is coming this year. He warns that apart from the economies, stock markets are also going to collapse this time. He cites 10 reasons for his recessionary-cycle theory.

1. The 8-year cycle is for sure. But it is difficult to say right now whether it will be minor or major one. Unknown factors determine the scale. The world economy is weak right now. It is going to weaken further. Whether it will bottom out is the question. In any case the world economy may have to toe the line of the Chinese.

2. China is the weak link, but it accounts for 10% of the world economy. So any problem of the Chinese is passed on to the world economy. Beijing has benefited from debt binge. But if the debt binge goes up by 40% in 5 years, that spells trouble to its economy and therefore world economy. China has crossed the limit.

3. Global growth rate fell to 0% in 2015, which is a certain sign of recession. India's exports collapsed to negative 5%. At this rate India cannot expect to increase its growth to 8-9%. India is the most protectionist economy. As a result of the protectionist measures, corporate India is reeling. There is thus a dichotomy between India's GDP growth and corporate India's growth. India's statistics are, therefore, doubtful.

4. A clear threat to the US exists. American oil companies may turn bankrupt. Further fall in oil prices is bad news for the world.

5. India's inflation problem is far from solved. Commodity price cycles are boom for a decade and bust for 2 decades. India's inflation is mostly on account of commodity prices.

6. Some 50-60% of world's currencies are linked to the US dollar. It is now hard to imagine US Federal Reserve raising interest rates. Already US economy is showing signs of slowing down.

7. Emerging currencies have seen a carnage, even if they are able to adjust significantly.

8. FANG (Facebook, Amazon, Netflix and Google) stocks are the next bubble? Companies getting funds despite not being listed on stock markets. Further funding of the startups may become harder.

9. India's public sector banks have very high NPAs. These bad loans are constraining credit growth.

10. Post-Cold War, the highest violent conflicts occurred in 2015. This has escalated geo-political risks.
Agency: Ap7am Desk

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