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World Recession Looms
"VERY HAIRY and very scary" was how one London fund manager described the stock market after the FTSE 100 plunged to its lowest level for three years. "There is panic in the market and about what consumers will do. It is feeding on itself".
Manufacturing in Britain is now in its fourth recession in ten years. According to one UK economist "there is as yet not even a hint of a let-up in the pace of decline". In the past few months, output of telecoms equipment has declined by 50%, of mobile phones by 25% and of PCs by 13%.
A recession will have a devastating affect on the jobs, conditions and lives of working-class people, if we let the bosses try to make us pay for their crisis. At the same time, public- sector workers face the ongoing threat of privatisation.
Marconi epitomises the crisis of overproduction/over capacity manufacturing is facing (see page 3 for further details). In one year its value has plummeted from £30 billion to £800 million. Losses of £5 billion are expected this year - one of the biggest collapses in corporate history. Marconi's creditworthiness is now at junk status.
Only a few months ago that commentators were confidently predicting that Britain would escape any fall-out from the US economy decline. Now it's clear that recession has not only hit manufacturing but is spreading to the service sector.
Last month demand for private-sector services fell for the first time in two and a half years. British Airways announced "sustained job losses ahead" and 20,000 jobs are expected to go in the City as a consequence of the stock market decline.
Banks and insurance companies have been some of the hardest hit by share falls, as fears grow that loans won't be repaid by Marconi and other telecommunication companies.
Consumer spending is still holding up in the retail sector, but for how long? With shares nose-diving and job losses escalating across the economy, a general recession is imminent.
"The markets are now staring into the abyss" wrote the Financial Times. "The bad news is spreading from the US and Japan to Europe and from the manufacturing sector to services".
A bigger than expected rise in unemployment last month sent US shares tumbling. Commentators who were forecasting a recovery just around the corner are now admitting that a recession seems unavoidable.
As a strategist at HSBC bank put it: "The main fear is that deteriorating job prospects will finally start to undermine consumer confidence, which is the only thing standing between the US and recession."
Some optimists hope that further US interest rate cuts will turn the economy around. But, the Federal Reserve Bank has already cut interest rates by seven times this year with little effect. Even if it were able to engineer a small recovery (which seems increasingly unlikely), the underlying problem of excess capacity and falling profits remain, threatening a prolonged and deep recession or even slump.
The rest of the world is in no position to bale the US economy out. Argentina, Mexico and much of Asia are already in recession. Japan is on the brink of recession after ten years of virtually stagnant growth, and output is slowing much faster than expected in Germany and the Euro zone.
According to the Economist: "The most striking aspect of the current slowdown is that it is more widespread than in previous world slumps in 1975, 1982, and 1991".
A world recession will have a radicalising affect on many workers and young people. As well as battles to defend jobs, many will begin to question a system which cannot even guarantee a job or the basics of a decent life - increasing the anti-capitalist mood and the potential for a socialist alternative.
THE COMMITTEE for a Workers' International (CWI) to which the Socialist Party is affiliated, has produced an eleven page statement on the world economy. This analyses in more detail the current economic crisis and its likely effects.
The statement is available at: www.socialistworld.net, or from CWI, PO Box 3688, London, E11 1YE price 50p
In The Socialist 14 September 2001: