Presently global capital markets slumped in the fears of the looming financial crisis, with many views support the assumption that recession is imminent, if not already in place.
Global economies experience periodical expansion or recession and the short-run variation of economic growth is known as the business cycle. The United States has the world's largest economy by GDP, according to the World Bank.
Economic growth, when measured with the change in the Gross Domestic Product (GDP), is the increase in the amount of products and services produced by an economy over time, usually calculated in year on year (Y-o-Y) basis. The effect of inflation on the price of goods and services also take under consideration to calculate GDP in real terms.
Going forward, the advance outlook of GDP growth worsened after the release of UK GDP growth rate of only 0.5% in the third quarter' first time since 1991. Downgraded global GDP forecasts indicate that all sectors of the economy are now declining, and at alarming rate that is consistent with the economic downfall into recession. Quarterly earnings have been poor as most of the results announced by companies so far, with revised downward guidance and profit cautions coming thick and fast across all industries. No single industry is the only sector to feel the pain' the very recent with the likes of Sony also warning of tough times ahead.
Big foreign investors flee developing economies’ they view as less stable, finding the opportunities in their parent countries, the repatriation of money has boosted the dollar to the detriment of smaller currencies. This create an extreme situations in the developing economies that were very much immune to US credit crisis before or at least thought that way. The dashing high growth rates of capital markets in the developing economies from the last few years have got a free fall in a month or two' with many scripts touched their lowest levels of three to five years or even more.
Markets are afraid that the world may see more countries go the Iceland way, whose economy effectively collapsed this month after its financial sector went bankrupt, and Argentina followed the same path. In Europe, Hungary, Ukraine and Belarus are all, like Iceland, in talks with the IMF to discuss possible loans
Many investors consider the Euro as very exposed currency to the vulnerable Eastern European markets; fell to a two-year low against the dollar, dipping below the US$1.25 level. The British pound dropped to US$1.5264 against the dollar, the weakest since August 2002.
Coming Monday (Oct.27, 2008) opening in the financial markets worldwide is very crucial. The paramount fact now is the "forced selling", one of the main reason of extreme volatility in global financial markets. Forced selling is the result of big losses in margins calls. With a margin call an investor has to either pay back a loan or put more money into an account because a security purchased with borrowed money has fallen to a certain level. Now with no money remained with the investors, brokers and exchanges have to sell back the unsettled positions in the open markets. Other factor of concern is the liquidity or credit crunch, as one fast way to raise the cash is to sell something, such as stocks.
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Recession AnalysisFinancial Markets, Global Recession, GDP, Currency Dollar and Euro, Capital Markets
