Seeds Of Hope
Careless talk of green shoots can cost, if not lives, then certainly reputations. Eighteen years after authoring the phrase, former chancellor Norman Lamont still feels obliged to defend it – protesting that he meant “shots not bushes”, and that the economy began to stabilise soon after. We are not there yet. But there are straws in the wind that suggest the economy may indeed start improving more rapidly than seemed possible even a few weeks ago.
There are signs of life in both the housing and stock markets, more optimistic news on the manufacturing front and – most significantly – evidence in the Bank of England’s latest Credit Conditions Survey that the money markets are easing. It’s too early for green shoots, but there are “seeds of hope”.
Gordon Brown’s luck was certainly in. He wound up the summit on a day when there was a raft of pleasing news around the world – and investors were determined to see the sunny side. To be fair, the markets were also cheered by the G20 agreement itself (even if the figures owed something to Mr Brown’s talent for inflationary arithmetic). The IMF cash boost was particularly welcome in alleviating fears of a further meltdown in emerging economies.
The hope in markets is that the worst of the crisis has passed. The reality, of course, is that the world remains hostage to the health of the financial system. It is highly possible that the meeting might mark a turning point. But the big fear the G20 didn’t address was the state of US banks. Faith in Treasury Secretary Tim Geithener’s plan is paper-thin, and it may yet reveal that the banks’ balance sheets are still not telling the truth. Moves to change the mark-to-market accounting rules may makes the values of toxic assets look better, but they won’t do much for investors’ faith in numbers.
The G20 hyperbole, complete with the “relief rally” on global markets, is pure escapism. It’s the real-life equivalent of ‘soma’ - the mind-bending drug used for mass thought control in Aldous Huxley’s Brave New World. Our leaders need to snap out of this entrance and face reality. UK growth fell 1.6% in Q4 last year. We’re now looking at a possible 4% decline in 2009 and a further contraction next year.
It’s far too early to build up on hopes. There are glimmers of light, but many dark indicators too - not least the worrying spectre of unemployment. The pace of decline might be slowing, but we’re a long way from digging ourselves out of this slump.