The first week of August, 2011 saw the world financial markets tumbling like a house of cards, the trigger being the US debt downgrade by credit ratings agency Standard & Poor’s. Financial markets continued to demonstrate large volatility with equities, risky assets and commodities (except for gold) tumbling and bonds rallying.

For many markets, August’s savage sell-off has been the worst since the October following Lehman Brothers’ implosion and investors diversified into havens such as high credit government bonds and gold.

The fact that the US and European economies are down in the dumps is obvious enough. But almost three years after the collapse of Lehman Brothers and a massive dosage of stimulus packages, debate still prevails as to whether the global economy is on its path to recovery or is likely to sink into another recession; having said that, more than one indicators point to the latter scenario.

Six recession indicators
Take shipping to begin with, which is a critical indicator of global financial health because so many of the world’s goods travel by sea. The latest data about dry bulk commodities-shipping costs, as tracked by the Baltic Dry Index, reveals that rates have fallen by a third so far this year. Further, the industry has not been able to impose normal surcharge which is typically a feature of peak demand periods.

Other indicators are the revision of various estimates as far as GDP growth and oil demand are concerned. Most global organisations have cut down GDP forecasts taking into account the failure of the developed nations to recover. But these downgrades are not just applicable to developed nations but to emerging countries as well. The latter especially are expected to witness a slowdown in growth as inflation and interest rates rise.