First published: The Times, 03/08/2009
The good news is that the recession may have ended in May or June. Recent reports about the recovery in bank earnings and bonus pool allocations, an array of rebounding leading economic indicators, and the buoyancy of equity markets all support that conclusion. Economic forecasts are generally being revised up.
However, as I shall explain, the economic stabilisation is fragile, a second downward leg is possible next year, and longer-term, we are losing the drivers of economic growth of the past 25 years.
In the UK, the British Chambers of Commerce, the Royal Institution of Chartered Surveyors, and the British Retail Consortium have all reported improved sentiment and performance in the quarter to June. Similarly in the US, the leading indicators that have guided forecasters for years, such as new claims for unemployment insurance, the broad money supply, orders for durable goods, and consumer and business surveys have all turned around. Economic recovery in the eurozone seems less convincing, though again, the worst is probably over. Market chatter is that in the third quarter, most leading nations will see an increase in GDP, and possibly quite large increases.
However, we should not be seduced into thinking that this comprises the gateway to a new expansion, because this “recovery” is not yet a match for the four horsemen of: financial instability; loss of leverage; retiring …more