A Forex View From Afar

The Recessionary Group of Seven

Despite all the measures taken by the world’s major governments and central banks, it is hard to believe the developed economies will have the power to avoid the recessionary path.

Today, Japan was just the latest developed country to join the slump list. Also on that list, the euro-union’s biggest countries including Germany, U.K, Spain and Italy, but surprisingly not France. Most analysts say that it is only a matter of time until Switzerland, Canada and the U.S. economies put their names on the list of countries with two (or more) consecutive negative quarters. As such, the G7 (Group of Seven) should be renamed the RG7 (The Recessionary Group of Seven).

It looks like the financial markets are not eager to price in such news. This is understandable since the major indexes have lost around 40% so far this year. Most analysts have dramatically diluted their outlook expectations for the economy in the coming quarter, from just a few months earlier. The latest forecasts say that economic growth will pick up somewhere in the third or fourth quarter of 2009. From my point of view, expectations for a bottom in the equity markets before the year-end are pretty low, especially if we look ahead to the first and second quarters’ earnings. Right now, consumers are feeling the full-blow of the credit crunch, and without consumers’ spending, earnings will come in weak to very weak. However, until then let us see how many corporations will avoid Chapter 11 in the coming months.

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