Signs and Causes of Recession

The media and private business meetings alike are reflecting increasing concern about the world economy. There are plenty of dynamic signs, like the boom in mergers and acquisitions and the fabulous private wealth still being created round the world. But these are often harbingers of approaching calamity, of boiling over and leaving famine behind where there had been feast.

Yesterday I heard a super-rich property tycoon enumerating the several reasons why he feels that the economic journey from here on will be sharply downwards. Arguing the contrary is hard. Most important, it’s true that we’ve yet to pay the economic price of the surge in oil prices. The notorious quadrupling of this key factor in the Sheikh Yamani days was the equivalent of taking one machine in four out of commission around the industrialised world – with a recessionary impact that few could withstand in comfort.

The oil price effect might be cushioned this time by the switch in emphasis in the world economy from manufactured goods to services. But on the debit side, if a climate of fear is building, that in itself will create the very calamity of which people are afraid.