January 8, 2010

V or W, that's the question

Nowadays, economic analysts, businessmen and politicians are divided into two camps when it comes to the current state of the world economy. Continuous increase of economic activity or a new global decline? A V- or W-shaped road to recovery, that’s the question.


On the one hand, a significant amount of influential people from the scene are confident that the worst part of the recession is over. They state that the global economy is now slowly climbing up from the all time low in march 2009, and will recover over the next couple of years. These specialists thus believe that the current crisis has a V-shape, and that the world is back on the way up.

Worldwide recovery

There are several indications why a V shaped recovery could take place as we speak. First of all, there are recovery signs worldwide. Consumers spending during the holiday season have increased worldwide. Housing prices have stabilized. Unemployment rates seem to have stabilized.

Growth China & India
Secondly, the continuous growth of China and India keep stimulating worldwide demand. These two emerging world powers still have rapidly developing domestic markets, continuing to drive imports and exports for firms worldwide. China has recently even surpassed Germany as the largest exporting country in the world.

Demand for resources
Finally, the demand for resources is rapidly increasing. As a result of more consumer spending in especially China and India, demand for oil, metals and other resources continues to rise and stimulate the world economy.


On the other hand, there is a movement that believes that the current positive economic signs are just temporarily. In their opinion, the road to recovery is significantly more bumpy, and the present growth will be followed by another period of economic downsizing before going up again many years from now. The so called W-shape recovery.

Ending government injections
This party predicts that there are strong indicators for a new period decline. First of all, because the government injections are coming to an end. Countries worldwide have stimulated their economies by enormous injections by their governments in e.g. infrastructure and construction. As these projects are coming to an end, economic activity could plummet again.

Fragile states
Secondly, there are several fragile states that are disrupting the financial system. Several nations that are on the verge of bankruptcy as a result of the crisis. Iceland has already gone bankrupt and is struggling under the heavy burden to pay back savings money to the United Kingdom and The Netherlands. Other nations such as The Baltic states and Greece are also close to an economic collapse. But the most striking example is Dubai. Once a goldmine for investors, the ambitious city state has almost vanished from the global economic map, and only survived because of huge injections from its neighbor Abu Dhabi. Financial shocks such as these are likely to keep the economy from recovering.

Disappointing U.S. numbers
Finally, disappointing figures from the United States continue to question the current growth. Although being chased by China, the U.S. is still the economic super power of the world. Recent disappointing numbers about unemployment rates in December 2009, continue to raise questions about the fact whether the economy will not be declining again over the time to come.

Bumpy Ride

It is impossible to predict which scenario will actually take place. The only thing we can take for granted, is take it will be a bumpy ride, and everybody around the globe will be affected by the outcome.

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