Are recession fears over?

Sharing is Caring!

Oil prices have started bouncing back after sliding to an all-time low of about $27 per barrel sometime in February this year. Latest data shows that oil has gained about $10 dollars to stand at about $41 per barrel in March from the average of about $31 per barrel in February. On the other hand the rally on gold that saw many investors rush to gold bar shops to buy the precious metal as the year kicked off appears to be cooling off. The stock market is also on an upward trajectory and investors now have broad options to choose from.
Fueled by the uncertainty in the markets as the year began, gold took off to an exciting rally as investors rushed to it as a safe haven to protect the value in their wealth. The courses for the fear that engulfed the market in the first two months of 2016 could be attributed to a number of factors, but top on the list was the slow economic growth in China and the sliding oil prices.  Both these factors were being interpreted by analysts to be potential early signs of the global economy headed to plunge into a recession once again like the one experienced in 2008.
China was experiencing a slower than expected economic growth and analysts projected the situation could get worse in the coming days. This prompted the Chinese government to rethink its economic development strategy from one that is export oriented to one that is focused on boosting local consumption in order to cushion itself from the external market shocks. As the transition started being implemented the markets were not sure of the outcome and stock markets started fluctuating randomly with huge margins. These haphazard stock price movements generated fear among many investors who opted to run for safety in gold which is the traditional safe haven.
As oil prices kept dwindling down, investors got worried too about those developments and their effect on international trade. With falling oil prices, it was expected that many oil exporting countries would be hard hit resulting to reduced cash-inflows for them. This would then lead to reduction in government expenditure for those countries and hence reduced imports from the affected oil exporting countries. The slowdown in imports would then be translated to the countries exporting machinery and other products; that would not be able to sell their goods to the oil exporting countries.  In addition, some of those countries with huge foreign debts would be able to repay the loans and that would mean they would default on their financial obligations to their foreign lenders. The combined effect of these scenarios would be a fall in the levels of international trade and a possible plunge into a recession when more countries get cash-trapped.
In addition to the oil prices slowing down and the economic growth in China dimming off, developed countries were being faced by a growing concern of weak local consumption. With slowed demand, deflation became a real threat to most of the states in the European Union and the US as the year began. This led several countries to tighten their stimulus packages in order to counter the deflation pressure and try to spur more consumers spending in order to raise inflation. In January, the Japan central bank revised its benchmark lending rate to the negative territory citing weak local consumption levels. Other countries too including Denmark and Switzerland are also in the negative interest rates territory; with Canada expected to follow suit.
The European Central Bank (ECB) also revised down its benchmark lending rate to zero while also pushing down the ECB deposit rate for commercial banks to -0.4%. This expansion in the ECBs stimulus package is also in line with combined efforts of trying to avert a possible slide into a recession fueled by deflation. The bank also raised its bond sale from $60 billion to $80 billion as a corrective measure to increase liquidity in the market and stimulate more borrowing. With a huge money supply in the economy, individuals, households and companies are able to borrow and spend more; hence triggering a rise in general price levels which in the end will help to reverse the trend in falling prices.
The global economy seems to be upbeat once again with a glimmer of hope that the feared recession might not be coming soon. Data from the US Department of Labor shows that there was an increase in number of new jobs created between January and February 2016 from 151,000 to 242,000 respectively. This coupled with the rising oil prices and the rally in the stock markets point to the fact that investor confidence is growing and stability might be resuming the markets soon.

See also  Inflation fears surge 10%, double 2018 worries; Home Prices Up, Up, Up 16.6%; Wages Pushed Down Nearly 2%; Most Blame Biden
See also  US growth and inflation disappoint raising fears about stagflation
562 views

Leave a Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.