Fear of Global Recession Strengthened by New Report
Federal Reserve Board Chairman Alan Greenspan recently gave his unusually gloomy testimony before the House Financial Services Committee concerning the U.S. economy. His prescription to reverse the downturn in the American economy with cuts in the interest rates has failed to stimulate a recovery. It is his hope that further reductions in interest rates, tax cuts and falling prices in the energy sector will arrest the downward trend by the end of this year or the next.
As the United States deals with its own financial woes, new reports of economic trouble from Singapore to Germany cause some analysts to question whether the growing gloom could push the fragile global economy into a full-blown recession. Recently, Singapore became the first Southeast Asian country to officially slip into recession. Economic experts suspect that other Southeast Asian nations will echo that trend when they release their second-quarter data. Thailand, Taiwan and the Philippines already have reported that their economies shrank in the first quarter.
Dismal economic conditions now reach into most corners of the globe. The U.S. slump has spread to Europe. Japan is teetering on the brink of recession, emerging economies such as Argentina and Turkey are at risk and a bear market in equities is showing little sign of rapid recovery.
The latest batch of wearisome figures comes as financial trouble is rippling through several emerging nations and raising the possibility of a worldwide economic epidemic. Currencies in Central Europe and the South African rand have suffered in recent days from crises in Argentina and Turkey. Events in Argentina have also taken a heavy toll on neighboring Brazil.
As the eight heads of the world's rich nations gathered in Genoa, Italy, for their annual summit meeting, economists and bankers feared that a global leadership vacuum threatens to delay any swift recovery for an international economy already tilting toward recession. "I think the world economy and world markets are crying out for leadership, but until now the only leadership has been provided by Alan Greenspan, and he is running out of ammunition," said Avinash Persaud, senior economist at State Street.
Sources: International Herald Tribune, Dallas Morning News.