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IS THE RECESSION OVER?


It looks like recession will be over before we know it. Look at the chart below, which perhaps helps unfold the most potent reason behind the world economy's huge contraction in the fourth quarter of 2008.


Image Source: Business Week
US consumer, the biggest driver of the world GDP chose to cut back massively and instead, opted to save some of his hard earned income. Well, the trend has continued to this day, manifesting itself in the huge reduction in household debt as indicated by the chart above. As per Business Week, savings as a percentage of US household income during the first two months of 2009 is already ruling at 10-year highs and businesses, adjusting to this new shift of lower spending and higher saving have embarked on a major cost cutting drive. The end result? Even a small pickup in demand will help companies post robust bottomline numbers and help bring back confidence in the battered economy. Furthermore, while everyone knew that deleveraging i.e. reduction of debt would be the key to a healthy recovery, we don't think anyone had a clue that the same will happen at such a lightning speed. At this rate, it won't take long for the recession to be a thing of the past.

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