Recession Over?
“Don’t be fooled by one month’s data” is one of the first lessons taught on any good economics course. Yet the accumulation of upbeat stats can no longer be ignored. Rather than the odd green shoot, the economic landscape now resembles a fragile carpet of green, and economists are busy revising their forecasts higher.
The most weighty of the green-shootists is the National Institute of Economic and Social research. If the NIESR is right, and they have been in the past, there’s a good chance that official GDP figures could show a flattening in the second quarter and a return to growth in the third. Good grief! The Chancellors’ much-derided Budget forecast could turn out to have been right all along.
Perhaps there is an economist’s recovery but, with large numbers of job losses still to come, the pain for many ordinary Britons is just beginning. Meanwhile there’s a danger that we lose something crucial amid all the green spouting. Momentum for reforming the financial sector and for rebalancing the UK economy was strong in the depths of crisis. Now it is palpably slipping away… on the slenderest of pretexts.
Forget green shoots, GMB union leader Paul Kenny said, what we are actually seeing is “greed shoots”. The “recovery” seems to consist largely of bankers getting “the financial gravy train back on the tracks” – witness the recent huge payouts at Barclays. Yet it is clear that the banking system is not yet out of the woods. The ECB warns of a further bank writedowns totalling $283bn this year: a bleak outlook.
There is now a big risk that central banks and governments will move too swiftly out of recession-mode strategy and begin reversing their supportive monetary and fiscal policies. There were hints of such exit strategies at the last G8 meeting. Yet there is still meltdown potential, especially in Europe. Latvia, for example, is a ticking time bomb.
Some economists think that the world has dodged a bullet. The risk of an all-out Great Depression… has receded, but historical analysis by economists Barry Eichengreen and Kevin O’Rouke gives pause for thought. The bad news is that this recession fully matches the early part of the Great Depression. The good news is that the worst can still be averted. But we shouldn’t delude ourselves. The path to full recovery is likely to be long, hard and uncertain.