Renewed fear of global recession as companies rein in spending plans

Growth in spending on machinery and investment by the world’s 2,000 biggest companies has begun to contract for the first time since the Lehman crisis, led by sharp falls in China and a near collapse in Latin America.

Standard & Poor’s warned that the global cycle for capital investment has already rolled over, with early signs pointing to deepening contraction of 5.4pc in 2014. “The capex recovery appears to be ending before it has really begun,” said the agency’s Gareth Williams.

Company spending plans are watched as an early warning gauge for the economy. The drastic falls in large parts of the world doom hopes for strong recovery later this year, and even point to a recession risk.

The International Monetary Fund has cut its global forecast for this year to 3.1pc, sharply downgrading Russia, Brazil, South Africa, India and Mexico, as well as Italy and Germany. “Policymakers everywhere need to increase efforts to ensure robust growth,” it said.

The unexpected pull-back in company spending is a serious blow.

It had been assumed that firms must soon start to spend their huge cash piles, helping to kickstart recovery. “This is a pretty troubling snapshot of the global economy and it shows endemic lack of confidence. Companies are still worried, and there still is excess capacity in autos and other industries,” said Mr Williams.

S&P said the commodity bloc had been hit hardest as the energy and materials boom turns to bust, with capex likely to drop by more than 20pc in Australia and 40pc in Latin America in 2014.

Link -
http://www.telegraph.co.uk/finance/economics/10174862/Renewed-fear-of-global-rec...
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Unexpected? I think not!

Renewed fear of global recession as companies rein in spending plans

Are you sure? Just last week Longy said the GFC was far behind us (all due to the Liberals, I presume)

Forget about the debt, apparently that doesn't count.

Personally, I can only see economic deterioration.....on a global scale. I stick to my predictions of 2007, deep recession/depression is unpreventable. It would have been fun (in a sick sort of way) to see it hit on Abbott's watch, but never mind.

If India brought Maths to the world (to the Arabs who took it to Europe), then surely  - yellow Asia is the Red-Herring Economy?

Well, it seems Australia is having a hyper-inflation afterall - especially with retail.

it is now a matter of waiting for the inevitable hair that breaks the back of the US & Global Economy!



It was always going to come to this, stuck between a rock and a hard place, with nowhere to go.

It makes you wonder if it would have been better to let it crash five years ago, get it over and done with and start the slow process of re-building the economy. Sort of like Keating's 'the recession we had to have'. Now, when the crush happens, and it will, it has to, it will be so much worse, goes to show you can't manipulate economies.

We might have got away with a deep recession, now we will end up with an almighty depression, probably worse than the last one.

That's uncontrolled Capitalism for ya! was good while it lasted though 

Low rates due to slowing economy: Howard

THE Labor government is deluding itself if it believes lower interest rates are a sign they have the economy well in hand, former Liberal leader John Howard says.

In 2004 when Mr Howard was contesting an election as prime minister, he said interest rates would always be lower under a coalition government.

"The context in 2004 was who was better to deliver lower interest rates in a booming economy," Mr Howard told the Australia-Israel Chamber of Commerce on Tuesday.

Then the Reserve Bank of Australia's cash rate was 5.25 per cent compared with 2.50 per cent now.

Mr Howard said rates were lower now because the economy was slowing.

"For anybody to run around between now and election day and say that a cut in interest rates means that the government has got the economy well in hand, they're deluding themselves," Mr Howard said.

"Look at some of the nations of Europe. They have got virtually zero interest rates and their economies are not moving."

Link -
http://www.dailytelegraph.com.au/news/breaking-news/low-rates-due-to-slowing-eco...
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Well, the RBA has lowered the cash rate to a record OZ low, so  everyone should now feel good & ready to go, RIGHT?

Wrong!

As John Howard points out, the rates in Europe are already effectively at ZERO and their economies are not moving & nor are Japan & the USA, who are in the same boat!

In fact, the reality of interest rates is that Governments & Central Banks use them to "influence" the Economy, by raising rates to slow Demand & lowering them to increase Demand.

However, there are situations where Governments & CB's are in CONTROL, where they are in relative control & some where they have

no control

over events at all.

The current event is the latter of the above situations & that will not alter, whether Labor or Liberal win the upcoming election!
 

Worldometers

realtime world statistics

http://www.worldometers.info/

Like all of this type of thing, they quite likely have some inaccuracies, but they can also provide some useful insights.

Un-sustainability of a Government debt (Gross) level above 60-90% of a country’s GDP, is a level generally accepted by Economists.

Personally, I would have a great preference to keep the Gross Debt to GDP ratio UNDER 45%, as it can get very difficult to actually repay government Debt, except for exceptional circumstances, such as the Peak years of the Baby Boomer Boom!

The level of tolerable Government debt depends on a multitude of factors, such as -
1) The borrowing currency is also a major reserve currency! If it is, then it may be seen to reduce risk levels & increase the possibility of "Printing" more money, to assist in servicing the Debt issue? Some related issues are currently percolating in the USA.

2) Who will own the government Debt, Locals or Foreign sources? The larger the Foreign component, the more difficulties may be experienced?

3) The Likely level of interest rates that will be payable on the Government Debt, over the short, medium & longer term? Higher rates (particularly short to medium term) make higher Debt MORE difficult  to service, whereas Lower rates make Debt LESS difficult to service?

4) But, expected economic growth, is the most important factor!
Higher levels of expected growth, will increase the likelihood of higher Tax Revenues, thus possibly increasing the attractiveness of investing in that Government Debt & possibly lowering the rates payable?   
Lower levels of expected growth, will increase the likelihood of lower Tax Revenues, thus possibly decreasing the attractiveness of investing in that Government Debt & possibly increasing the rates payable?

Of course, these are government & Market REACTIONS TO THE REAL ECONOMY and that real Economy is now being driven by 3 major factors, each of which has or is, in the process of change course, compared to their positions, over the last 50-60 years in particular & those factors are -
1) Demographic Changes - Over the last 70 years or so, we have seen the largest Population explosion in human history, which is now Peaking, before going into actual reverse over the next 20-30 years.
The major effect here is that the rate of increase in DEMAND for all forms of Goods & Services skyrocketed between WW2, until the early part of this new century, BUT since then DEMAND has started to wane & the rate of increase in DEMAND has commenced to slow.
Over the next 20-30 years, DEMAND for all forms of Goods & Services will first level off & then commence to Decline and no amount of stimulus will change that basic fact!
2) Energy (Supply & Pricing) - This is one of 3 great enablers to the Demographic surge between 1945-2005 and the massive discoveries of Fossil Fuels (such as Oil, Coal & Gas), at very low Prices, assisted the massive Population growth over that period.
However, the rate of growth in Supply started to taper off in the late 1990's, became more evident in the first decade of the new century and the resultant lack of Supply/increasing Demand showed up in massive Price hikes, with Oil going from $10 a barrel in 1999, to around $148 a barrel in 2008.
The major effect here, is that Fossil Fuels & Oil in particular are involved in almost every Product & Service known to humanity AND the increasing Prices of Fossil Fuels are driving Price hikes across the board, with the Publics Disposable income taking a substantial hit, over the last decade or so AND THAT WILL CONTINUE, AS THERE IS NO VIABLE ENERGY ALTERNATIVE THAT CAN DELIVER BOTH SUFFICIENT VOLUME & THE RIGHT PRICE!
Of course, the consumer hit to their hip pocket, MUST & IS, BEING REFLECTED BY A DECLINE IN DEMAND!

By the way, the other 2 great enablers are -
Climate - We have had a goldilocks climate for several hundred years, which has greatly assisted in accommodating the additional Population, primarily by way of providing sufficient Food & Fresh Water.
Technology - Human Technology has exploded, particularly over the last 100-200 years and that has provided an enormous boost in Productivity, again assisting the Population explosion in a myriad of ways.
That said, the goldilocks climate is now in the process of ending, whether it be natural or human assisted is still being argued out, although I would agree there is a degree of human cause involved.
Which leaves us with Technology and as I have said previously, Technology may again ride over the hill to our combined rescue, BUT AGAIN I WOULD COUNCIL AGAINST RELYING ON LAST MINUTE, OUT OF THE BLUE CAVALRY CHARGE BY THE TECHNOLOGY BRIGADE, AS IT IS SIMPLY NOT GOOD PUBLIC POLICY!

No, IF we want a future for ourselves, our children & our children's children, then we will have to start making some really tough decisions & we will have to start NOW!

We will need -
A complete review of Government Taxes, Expenditure and all government Policies.
Specific Tax increases & lower Expenditure & an emphasis on Productivity.
Co-operation across all Political parties, for the longer term benefit of all Australians.
AND, all of the above, will also need to take place Globally.

Can this & much more be done? The answer is YES!
Will it be done? On that, the realist in me, is nowhere near as confident AND the flow on effects from the Demographic & Energy factors, will place Growth in particular extremely difficult and return to past Economics absolutely impossible!

In any event, knowledge is everything and at least if you are armed with what is really going on, then your chances are better of getting better outcomes.

perceptions_now wrote on Aug 20^th, 2013 at 11:56pm:


DOW DOWn again overnight, this time by 105, to finish at 14897, DOW Futures is also DOWn another 30 at the moment & the All Ords is down  60.

The OZ$ is also down, again, to 89.36 against the US$, which is now rebounding & is on the up, with the US$index at 81.47.   

Much of this is currently due to increasing focus on the US Federal Reserve & the Consequnces for the Global Economy on what the FedRes MAY or MAY NOT DO, with it's "money Printing" program, which is reputedly currently set at about $85 Billion per month, WHICH IS $1 TRILLION PA!

It is safe to say, we can all expect some considerable VOLATILITY OVER THE NEXT FEW MONTHS, WITH A BIAS ON THE DOWNSIDE!