|
Is the world economy
heading for a recession ? Many indications in the US economy, the motor of the
present day international imperialist system, would give that impression.
So desperate has been
the US Federal Bank, that it has cut interest rates five times in the first five
months of this year, in order to boost investments. It is planning even further
cuts. In addition, the Bush administration has passed huge tax-cuts amounting to
$1.35 trillion over 10 years in order to boost consumer spending. These are
signs of desperation in the aggressive measures being taken to stave off a
recession in the US. The downturn in the US economy began last year. The slump
in the capital markets in the second half of the year had brought the wealth
down of people by $4 trillion. Unlike other countries, in the US, every second
adult has some investment, directly or indirectly, on the stock exchange. Also,
it was about this time that GDP growth began climbing down — from 5% in the
third quarter of last year to 1% in the fourth quarter. Many companies began
their job cuts last year itself, particularly in the so-called ‘new economy’ (infotech
sector).
In the current year
the situation has worsened. Companies are either laying off employees or
shutting down altogether. The month of April 2001 saw the biggest lay-offs in a
decade, with 2,23,000 people losing their jobs. Major corporations have
announced nearly 6 lakh job-cuts in the first four months of the current year.
Unemployment (official) has climbed from 3.9% last October to 4.5% today. Though
the worst cuts have been in the infotech sector, all sectors of the economy have
been affected. While the US experienced an average growth rate (in GDP) of 4.5%
over the last four years, it is forecast to come down to 1.5% in the current
year.
What the Federal
Reserve of the US fears is that the fall in investment and weak corporate
profits may ultimately erode consumer spending and bring the economy closer to
recession. As it is, personal savings in the US are now negative, which means
households have been borrowing to meet current expenditures. As the economy
expanded with stock markets rising, there was an illusion of wealth. Money was
plentiful and borrowing easy. But now with the downturn, the bubble will burst.
The illusion of wealth will evaporate, purchasing power will drop and
bankruptcies are likely to be larger than most earlier downturns, as the bubble
economy created a froth of unviable dot.com companies built through artificial
infusion of funds.
In Japan the
situation is no better, even though it has reduced interest rates to zero. After
a decade of recession, the slight recovery of last year has proved to have been
fragile. The growth rate is expected to drop from 1.7% last year to a mere 0.6%
in the current year. Its banks have bad debts of a huge $200 billion and its
public debt is 140% of its GDP.
Though the European
Union has not been as badly hit as the other two major economies, it is also
facing serious problems. Particularly, its largest economy, Germany is in a
severe state of stagnation. In Germany inflation has risen to one of its highest
levels in recent years, at 4.1%. The US sought to force the EU to cut interest
rates, which it first refused to do, fearing inflation; later it was forced to
do so. Britain and Japan had already obliged by also cutting their interest
rates. Major European companies are also laying off workers by the thousands.
Growth rate in Europe last year, for the first time recently, crossed the 3%
mark. In the current year it is expected to drop to 2.5%. The value of the Euro
continues to fall relative to the dollar.
According to the
World Economic Outlook 2001, the developed countries are expected to record a
substantially lower growth of 1.9% in 2001 against 4.1% last year. The following
chart gives a picture of their estimate for the current year:
So panicky is the
business climate in the developed countries, that apart from drastically cutting
personnel, company executives are told to fly economic class, save on taxi
costs, use public transport and cut down on business entertainment.
The crisis in the US
economy will have its impact worldwide. The downturn in the US will have most
serious implications particularly on the backward countries, specifically those
closely integrated with the US economy. Already, in the first quarter of this
year imports to the US were cut by as much as 10%. Though this helped raise US
growth rate in that quarter to 2%, it really meant exporting the depression to
the exporting countries. The so-called ‘Newly Industrialised Countries’
will be the worst hit, with the growth rate expected to fall to 3.8% from 8.2%
in 2000.
India too will be
badly affected, as, of late, the Indian rulers have sought to chain the Indian
economy to the US, ever more strongly. Already the much hyped software personnel
in the US are scrambling back home, jobless. The infotech companies in India,
which acted as glorified cheap labour service providers to the imperialists,
particularly the US, are also in a dilemma. Afterall India’s software exports to
the US reached $4 billion last year i.e. 50% of the total revenue earned by
India's entire software sector. Already hundreds of infotech personnel are being
thrown out of jobs every day. Salaries of those remaining are being slashed.
Software training institutes that mushroomed are collapsing/disappearing. In
addition garment exports have already been badly hit, with the US accounting for
33% of the total. The loss is not only through a drop in the quantum of exports,
but they are also being forced to sell cheaper. In the first quarter of this
year (Jan-April 2001) garment exports have dropped by 13% over the same period
last year, and their value by as 15%. All this is under serious threat. Besides,
Indian exports to the US and Japan constitute 25% of the total. As this amounts
to a huge 2% of India’s GDP, the downturn in those two countries can have
serious implications on the Indian Economy, which is already in a mess.
The impending
recession in the world economy will have a number of implications.
First, the contention
amongst the imperialist powers will become more acute; particularly that between
the US and the EU. The scramble for a declining cake will get more intense.
There is likely to be a greater assertion of the EU in the international arena
vis-a-vis the US. With its declining economic clout the US is likely to
increasingly flex its military muscle to maintain its domination over the world.
Second, the backward
countries of the world will face even more oppression and loot, as the
imperialists will seek to push the burden of the crisis onto their backs. There
will be fiercer contention amongst the imperialist powers for spheres of
influence. This will result in greater infights amongst the comprador ruling
classes, which could be fruitfully utilised by the revolutionary forces.
And lastly, an
economic crisis, though it will result in an increased suffering of the masses
throughout the world, it will also lead to an intensification of all
contradictions. The sharpening of these contradictions will unleash greater
potential for the revolutionary forces to grow, provided they seize the
opportunity.
|
