“Is the world’s biggest economy moving towards recession?” seems to be the question on every investor and economic policymaker’s lips on August 5. Going by the way the stock market indices have behaved in the US, Europe and Asia between August 2 and 5, the concern seems justified.
Stock markets crash tip of the iceberg
The speculation seems to hinge on the quite unexpected rise in the unemployment rate in the US that was published on August 2, which triggered the frowns and pulled down Dow Jones, Nasdaq and S&P 500 composite indices to significant lows.
Focus on unemployment rate
The unemployment rate in July climbed up to 4.3% which was nearly a three-year high. The rate was too high for comfort, since only in April 2023, it stood at 3.4% which was the lowest in 50 years. Even in June 2024, the unemployment rate was recorded at 4.1%.
All eyes on US Fed
The US central bank, the Federal Reserve, has set a September date for a rate cut that has been expected for a long time. Slashing key interest rates helps in lowering interest rates on different loans in the country, thereby boosting consumption, demand and stimulating growth that would, in turn, lead to more employment.
Gary Clyde Hufbauer, senior fellow at the Peterson Institute for International Economics, who was quoted by Al Jazeera thought the jump in unemployment rate “points to a recession in 2025”.
The road ahead
Experts thought that the US Fed that was parrying a rate cut for the past few months might be doing so at the earliest opportunity to breathe life into the economy. If the Fed adopts that measure, the outcome could be a “shallow recession” said Hufbauer.
What is recession?
A decline in economic activity, reduction in GDP, employment numbers, industrial output, dip in demand of good and services typically characterise recession. For India, US recession could have dangerous implications. Indian exports to the US can dip, affecting income of businesses here.
Dangers for India
Over the last couple of years, slowdown in the US and other developed western economies triggered slowdown in earnings and growth in the Indian IT sector, one of the country’s engines of growth. One immediate fallout has been almost no hiring of engineering graduates from the campuses. Many professionals lost their jobs.
US recession News: The US Federal Reserve is expected to respond by lowering interest rates. Boosting demand in the economy is a way to combat recession. Markets Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
