FINANCIAL MARKETS AND THE WORLD ECONOMIC RECESSION

C. P. CHANDRASEKHAR (Jawaharlal Nehru University, India)

Two aspects of global economic performance have come up for scrutiny in recent months. One is the slowdown in global economic growth, which persists despite upbeat assessments that a recovery is underway. Aggregate growth in OECD countries as a group was held up during the 1990s by the strong performance of the US and the creditable performance of the UK. But since 1999, even these economies, especially the US, have turned sluggish and are on the verge of entering what is conventionally considered a recession. This has occurred despite repeated efforts by the US Federal Reserve to drive down interest rates and the more recent tendency for the US government to revert to a period of deficit budgets. This has encouraged analysts to turn to the effects that the collapse of the stock market boom has had on consumption spending, suggesting a strong and link between financial sector performance and the real economy.

The other feature of global economic performance during the 1990s was the lack of synchrony in the economic cycle across countries, including the developed countries as a group. Here again, once a link was established between US economic performance and US growth, the facts that slow growth in Japan was attributed to the weakness of its banking system and that growth in a number of better performing developing countries collapsed after the East Asian currency and financial crises and the contagion that followed, suggested that finance played a major role in determining the contours of real economic development.

This paper is concerned with investigating the nature of the role that finance has come to play, examining the links between finance and the real economy and assessing the implications for economic performance in the current global conjuncture dominated by finance capital