June 26, 2009

Green Shoots and Killing Frost

By examining this title, you might think that I have turned into an agronomist or the weatherman. Well, neither would be the most appropriate response. This is a reaction to the media and government’s speculation concerning a possible turnaround in the economy, referring to positive components as “green shoots.”

If one examines the global economy from the last quarter of 2008 to its current status, one could concur that the economy was in rapid decline. Will it make a robust rebound? Projected North American growth was slightly below one percent, which is very similar to the outlook for the last quarter of 2008. However, the actual output growth was negative 6.3 percent and 6.1 percent, demonstrating rapid decline. Japan and South Korea were projected to have a slightly positive to slightly negative growth rate. Within six months, GDP was negative 12 percent and negative 20 percent, respectively. Brazil and Australia faced similar fates.

An examination of India and China finds the rate of growth slowed from near double digits to five to six percent. The lesson to be learned from this analysis is that when economies headed south, the change occurred rapidly and abruptly.

Some economists expect the ascent to be equally impressive, giving a v-shape recovery. Yes, stimulus packages are providing some economic recovery in regions of the world such as India and China. However, here in North America and Europe, the green shoots may be hit with a killing frost as Federal debt increases and commercial real estate and credit card debt issues arise. Higher taxation and issues concerning the Federal administrators’ stance on environmental and public health issues are challenges to consumers’ confidence.

Comments

Please send your remarks to AgGlobeTrotter@accountlist.com. I would like to know what you are thinking.

Dr. David M. Kohl is Professor Emeritus of Agricultural Finance and Small Business Management and Entrepreneurship in the Department of Agricultural and Applied Economics at Virginia Polytechnic Institute and State University (Virginia Tech), Blacksburg, Virginia. Dr. Kohl has traveled over 5.1 million miles throughout his professional career. He has conducted more than 3,000 workshops and seminars for agricultural groups such as bankers, Farm Credit, FmHA, and regulators, as well as producer and agribusiness groups. He has published four books and over 400 articles on financial and business-related topics in journals, extension, and other popular publications. Dr. Kohl regularly writes for Farm Journal, Top Producer, Ag Lender, Journal of Agricultural Lending, and Soybean Digest.

©Northwest Farm Credit Services 2009

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