The unabated global economic turmoil has begun to separate the world by not only emphasis on national rather than international remedies but also slowing down cultural interchanges and tourism.
Over time, the slowdown in the physical movement of people through travel for business and tourism may sharply set back consolidation of a global community built on peace and prosperity. In some areas, travel has dropped 35%.
People have become cautious in all countries and are cutting back on expenditure. One of the first expenses dropped by both individuals and business is travel and tourism. The Internet is a key component of our global village but face time with others is what convinces us about our equality as people deserving to live with decency and dignity.
This fear of spending locally and globally is both a result and a cause of the current economic recession. The situation is much worse than expected just six months ago and signs of improvement will take a long time to come because of sluggish consumer demand. Undoubtedly, the global economy will improve after about 12 months but the upward climb will be slow and could take as long as 10 years.
Analysts who sounded a little optimistic in December 2008 about economic prospects for the second half of 2009 are now suggesting a defensive crouch until the spring of 2010. Those at the epicentre of the current crises, namely, the US and Europe are sliding into economic depression.
Yes, using the D word is no longer a mistake or an excess of pessimism. That is because manufacturing is starting to take a severe beating in the US, Europe, China, Japan, Taiwan and South Korea. Manufacturing is shrinking in those countries at annual rates of 12% to 30% without any clear prospects of staunching the haemorrhage.
This is lethal because consumer demand continues to be weak and fearful in almost all countries despite the several trillion dollars in various kinds of support being poured into many economies. By the time the spending filters into the system to create its positive impacts, consumer demand may have sunk below the horizon.
The demons of downturn are outmanoeuvering the smartest people, whose clever policies and hundreds of millions in spending have not succeeded in reigniting demand and consumer confidence. They have had almost no impact on the credit freeze among banks and the obsessive caution of investors. Reduction in the volume and value of world trade is inevitable making more poverty inescapable resulting in more political instability.
The earlier view that rescuing giant financial institutions and other huge corporations will be enough to turn around the economy stands discredited. Middle and middle to large companies also need to be rescued because the credit freeze combined with timorous consumer demand is killing them. With their collapse or belt tightening come more job losses, since these companies provide over 70% of employment in most developed countries.
Greed and hubris caused the economic catastrophe but fear is now pouring poison upon the soil required to regenerate the paths to prosperity. There is a double whammy here. Companies are folding up because the demand just is not there to justify new investments. In any case, getting the money to invest is very difficult because lenders fear that they may never recover their loans since demand will continue to be sluggish for a long time.
President Barack Obama made a rousing speech to US Congress emphasizing optimism and resolve while underlining the difficulties. But his economic rescue plan worth over one trillion dollars was not well received by investors. Some say he may have lost the best opportunity of his Presidency because he failed to score positively on the key issues of consumer and investor confidence.