By Haresh Soneji/CNBC-TV18

US Fed Chairman Ben Bernanke has warned of a recession. The IMF has cut world growth forecast and ADB has cut Asia growth forecast. So, how are world markets positioned currently?

Bernanke uses the word ‘recession’ for the first time. In response to a question, he said, “a recession is possible”. His usage of the ‘R’ word is a rare event as it shifts away from the stand that the economy will slowdown. The Fed Chairman has projected that the economy may shrink in the first half of 2008. Fed traditionally shies away from giving the markets reason for pessimism.

The International Monetary Fund, or IMF, shares the Fed's pessimism. It has cut global growth forecast for CY08 to 3.7% from 4.1% citing the worst US financial crises since the 1930s Great Depression. IMF doesn’t use the ‘R’ word for US economy but has lowered US growth to 0.5% in 2008 from the earlier forecast of 1.5%. It feels the euro region will slow down too, and gives a 25% chance that global growth may fall to 3% or lower in 2008 and 2009, which is equivalent to a global recession.

ADB has gone a step forward and cut developing Asia forecast to 7.6% from 8.2% for CY08. Developing economies in Asia grew 8.7% in CY07. It said Asia would grow the fastest in FY09. On India, it feels GDP will slowdown to 8% in FY09. China, according to it, is more prone to a slowdown in the US, Europe, and Japan.

So, how are markets likely to be impacted?

The markets have already factored in a US recession and global slowdown. How long and how deep are the key issues at this point in time? Export-oriented markets are likely to get impacted the most. Risk appetite may decline further.

India commands a high-risk premium, which may further erode. But its domestic growth story will continue to attract investors. India Inc’s results and forex derivatives loss management might impact the markets in the short-term.