Are Hopes Of Recovery Over-Done?
They say you know the tide has turned when the last great pessimist throws in the towel. So there was some significance in George Soros’s recent pronouncement that apocalypse has been avoided. “The economic freefall has been stopped, the collapse of the financial system averted,” said the billionaire investor whose graphic warnings of imminent doom shocked the world last year.
And all around, it seems, there is optimism that the worst of the slump may be behind us. Commodity prices are rising, indicating that global manufacturing demand may be picking up; investors seem willing to stump up cash for banks and companies; even the OECD now indicates that a sharp bounce in April activity suggests that the best-case scenario – a V-shaped recession – is no longer out of the questions.
But, there’s a big difference between an economy getting worse more slowly and one that is on the path to recovery. Even if modest signs of improvement develop into rising output by the autumn, there is still a strong risk of relapse into a double-dip recession. The bank of England recognises as much: its move to step up quantitative easing with an extra £50bn shows it believes the banking system remains fragile. And unemployment, up by almost 250,000 in Q1 (the biggest quarterly rise since 1981), still looks worrying.
We can’t assume the international outlook is altogether rosy either. It would take a sustained rise in Chinese exports to suggest that demand in the rest of the worlds has turned, yet they fell by 3.5% between March and April. And US property prices are still falling, while losses at Wall Street banks continue to mount. As Gordon Brown never tires of telling us, this crisis began across the pond. And that’s where it will end.
Green shoots have been proliferating in the hothouse of the financial markets, but step outside and the climate is very differen. Bank governor Mervyn King’s withering summary of conditions suggests an economy that, rather than shooting, looks shot. Recovery won’t begin until 2010, King said, and even then there are pretty solid reasons for questioning if that will be sustained.
The coming years will certainly be rough, yet the nation today is markedly different from the shabby, defeated country we were in the 1970s. Britain, in fact, seems determinedly cheerful. Why? Perhaps because, although things are bad, no other country seems to be doing markedly better; or perhaps because – having dug ourselves out of a hole once before – we feel we can do it again.