Boom/Gloom Index suggests downturn resuming

Index Sept11.pngA recession is often defined as being when your neighbour loses their job. A depression is when you lose your job.

Latest industrial production data shows output is falling around the world. And US unemployment is rising again, with the wider measure at 16.2% as long-term joblessness becomes a major problem.

Last month’s IeC Boom/Gloom Index suggested that financial markets were “on the edge” of a renewed recession, or worse. The Index had fallen to its lowest level since the US Federal Reserve ‘rescued’ financial markets last year with its QE2 liquidity programme.

This did more harm than good in the real world, by boosting oil and commodity prices, and thus destroying end-user demand. Now all of us, just as the blog feared back in October (when QE2 began), are having to live with the consequences of the Fed’s mistake.

Even stock markets are becoming worried, as this month’s Index (blue column) shows. It reflects the sharp change in sentiment since May, and is now back to the recession levels of 2008-9. Similarly, the S&P 500 (red line) has lost momentum, and is clearly slipping.

The fundamentals are also looking worse, as the politicians posture over Eurozone bailouts and the US debt position, and avoid the hard decisions. Whilst China’s stimulus-induced inflation remains far too high for comfort.

The odds on a new recession are therefore clearly shortening day by day. As Deutsche Bank head Josef Ackerman warned yesterday, “‘The new normal’ is characterized by volatility and uncertainty. All this reminds one of the fall of 2008.”

The failure of GDP in most Western economies to recover 2007 levels means this could quickly become a depression, despite (or perhaps because of) the $trns spent on global stimulus programmes.

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. He also serves as a Global Expert for the World Economic Forum. The aim of this blog is to share ideas about the influences that may shape the chemical industry and the global economy over the next 12 – 18 months. It looks behind today’s headlines, to understand what may happen next in critical areas such as oil prices, China and Emerging Markets, currencies, autos, housing, economic growth and the environment. Please do join me and share your thoughts. Between us, we will hopefully develop useful insights into the key factors that will drive the industry's future performance.

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