by Yury Kapko
York Investment Club Analyst
If you are one of the few fortunate ones who got a job this summer and happened to work in sales (whether you sell mutual funds, travel packages or simply window cleaning services), you probably know that the most frequent response you would receive from people today is “not this year”.
Ever since the economic crisis hit households worldwide in December 2007, millions of people have found themselves unemployed, without tangible savings and with a pile of debt on top of all their other problems–never mind you trying to sell them stuff they don’t need.
To make things worse, as soon as the Wall Street cowboys realized that the situation would not improve any time soon, they were quick to stop lending each other money, leading to a closure of the credit markets, a collapse of the financial system and stock markets.
In the end, the average Joe was left wondering how it is that his RRSP today is worth only 45% of what it was a year ago.
A short chat with any employee at Magna International or the new GM, however, will make you doubt if anything stated above is anything close to the truth – workers of the two largest players in the automotive industry will tell you they are busier than ever before and pull overtime. So does that mean the deepest recession since WWII is finally over? Well, most of the government officials, economists and analysts would, at best, only partially agree.
In one of his speeches, recently re-elected Chief of the Federal U.S. reserve Ben Bernanke expressed that the recession is “leveling out”; however, return to growth will not be quick. Olivier Blanchard, the Chief Economist from the IMF also supports the point by adding, “The turnaround will not be simple. The crisis has left deep scars which will affect both supply and demand for many years to come”.
Nonetheless most optimists would brush off these words, citing only the positive news that has been hitting the press recently. As such, Germany and France surprisingly marched out of recession ahead of everyone else, reporting 0.3% positive growth on year-over-year basis.
In addition, consumer spending in America rose by 0.5%, fuelled by “cash-for-clunkers” programs, allowing consumers to get rebates of up to $4,500 for trading in their older fuel-inefficient vehicles for newer models. Moreover, most investors have started to bank on prospects of returning growth, pulling North American stock markets up as much as 50% from recent lows (stock markets are academically recognized as one of the leading indicators of the economy).
Even though today you may have more confidence than a year ago in buying yourself that toy you wanted for a while, Stephen Harper and Jim Flaherty are wary to declare the recession over – both of them nothing that the recovery is “fragile”.
IMF and government officials worldwide warn us that the economic system in the developed world is still “broken” and will take a while to get back on track.
Some analysts predict that the recession may take another dip, pointing out huge amounts of credit card debt, reluctance of North American consumers to spending (a habit responsible for 70% of the North American economy), and uncertain conditions in the housing market.
They also warn that, due to the huge deficits governments have taken on (approximately $5.4 trillion for G20 countries), taxes would have to be raised across all nations, leaving consumers with less disposable income to spend and drive economic growth. So who knows, perhaps next year when you approach someone trying to sell them your product you’ll hear instead, “Is there a tax credit for it?”
