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Positive fallout of crisis

Aug 12, 2009

US productivity surges
Call it the pressure to perform or the employer's complacency during good times or may be, both. The global financial crisis has definitely changed these factors for the better. As per Bloomberg, the productivity of US workers in the second quarter has grown at a fastest pace in almost six years as employers slashed payrolls to boost profits. Productivity, an element that perhaps does not get the attention it deserves from analysts due to the difficulties arising in its correct measurement, is often a crucial factor in determining profitability of a company. Like in this case, higher productivity would mean that companies will have to fire lesser number of workers from here on as sales stabilize thus helping ease the unemployment situation, which has easily been the worse since the Second World War. What more, it also helps increase the output of goods and services and in the process, reduces inflation. This in turn helps the US Fed to extend its stimulus program, thus giving the economy a better shot at recovery. Testing times ahead for China
Voices that China could be heading for another 'dip' in its economic growth are getting louder by the day. A couple of days after Stephen Roach, one of the world's most respected economists raised a red flag, few other have also joined the growing list of detractors. As per a leading daily, the huge 18.3% growth that China registered on an annualized seasonally adjusted quarter on quarter basis in the second quarter of 2009 is unsustainably high and any more increase could surely lead to greater inflation and even more bigger asset bubbles, eventually causing a collapse in economic growth.

Experts are of the opinion that the enormous stimulus packages unleashed by the Chinese government have encouraged more fixed asset investment at a time when the need of the hour was perhaps to reduce capacity. Thus, as the effect of the stimulus packages wears off, the realities of excess capacities will dawn on corporates, forcing them to go slow on them and thus, leading to a slowdown in investment led GDP growth. Furthermore, the possibility of a second stimulus package by the Chinese government seems limited because the country's fiscal sustainability is less strong than it appears. A second package is only likely to make it even worse. Indeed, testing times ahead not only for China but also for the rest of the world as another of its growth engine starts to sputter.


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