MARKET COMMENT
The End Of The Recession Is Nigh! Are You Ready?
By David Kuo (TMFDragon)
December 5, 2001
Carburton Street, London -- We all want to live and work in an economic environment that provides the prospects of steady employment, stable prices and yes, a rising standard of living. Everything was going swimmingly until the locomotion of economic growth hit the buffers of recession, sending the carriages of global economies off the tracks. The derailment happended becuase economic growth occurs in cycles. It always has and always will do. Periods of faster economic growth are often followed by phases when the economy slows right down. There are many theories as to why these trade cycles happen. Often, the theories are moulded to fit the situation in hand.
These theories (and remember, they are just theories) range from economic shocks like the oil crisis of the 1970s to changes in government policy. However, the recent downturn that we are presently experiencing is believed to be caused by lower expectations from technology companies. Expectation, or the lack of it, can have an influential effect on economic growth. Many of these companies, especially the technology powerhouses, have reined in spending and delayed investment plans. On its own, the reduction in technology expenditure by any one company is not particularly significant. But when aggregate demand falls, decline in growth will normally follow suit.
Aggregate demand has so far been sustained, in the main, by consumer spending and targeted government expenditure. But what has been missing from the equation is investment expenditure. But we are now seeing indications that companies are prepared to resume capital spending. Recent reports from Oracle (Nasdaq: ORCL), Cisco Systems (Nasdaq: CSCO) and Intel (Nasdaq: INTC) suggest these businesses are much more upbeat over the future. They are also expected to report improving sales, albeit from a low base. This third component of aggregate demand, namely investment expenditure, is the key to the end of the global recession. The suggestion here is that the end of the global recession is nigh.
More on the Economic Analysis discussion board.
The writer holds shares in Cisco Systems
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