he US dollar and the Japanese yen maintained a strong tone in the past fortnight as risk aversion flows continued to dominate trading in financial markets. Investor sentiment was hit by a slew of bad news, including weaker than expected reports and poor earnings at major global banks. In addition, the downgrades or potential downgrades to sovereign ratings of some of the euro zone and other economies, including Greece, Spain, Portugal, Ireland and New Zealand due to their deteriorating fiscal conditions also hurt confidence.
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According to the assessment by the U.S. National Bureau for Economic Research, the U.S. economy has already been under recession since December 2007, taking into consideration various economic data including employment, income and production. Tracing the performance of U.S. GDP, it is expected to continue declining in the fourth quarter, after falling by 0.5%(annualised) in the third quarter, in view of the further weakening of major economic indicators in recent months. Therefore, it is going to demonstrate two consecutive quarters’ GDP decline, fulfilling another definition of recession. The impact of the stimulus package amounted to USD100 billion through tax rebates implemented early this year by the Bush Administration has proved to be short-lived. The successive injection of liquidity to the banking system by the Federal Reserve and the launch of the USD700 billion Target Asset Relief Facility still cannot stop the economy from getting worse. As Obama is going assume U.S. presidency in early 2009, global attention would focus on how his administration tackle this economic crisis.
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