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Published: April 3 2009 18:51 | Last updated: April 3 2009 18:51
However, the signs remain tentative. Economists warn that recessions rarely proceed in straight lines and false dawns are common before recovery finally takes hold.
G20 has little impact on global economics - Apr-03US unemployment hits 8.5% - Apr-03Lex: Supercharged IMF - Apr-04Lex: Stock market rally - Apr-05G20 leaders hail crisis fightback - Apr-03Long View: Optimism is alive - Feb-14With the world economy in uncharted territory – in a synchronised downturn, with a badly damaged financial sector and need for large balance sheet adjustments at overstretched households – few experts have any confidence in their forecasts.
Friday’s news that the US economy lost 663,000 jobs in March is a reminder that the global economy remains in dire straits with considerable downward momentum.
However, it does appear that the rate of deterioration has slowed from the precipitous pace in late 2008, when the global economy looked to be diving off a cliff. Surveys of business sentiment round the world, particularly in the manufacturing sector, suggest conditions are less bad than they were a few months ago although still bad by historical standards. In the UK, for instance, Ben Broadbent, of Goldman Sachs, estimates that purchasing managers indices are now consistent with an annualised rate of decline of 3 per cent rather than 7 per cent in the fourth quarter of 2008.
Beyond this, there are specific encouraging signs in different
economies. In the US, economists point to surprisingly solid retail
sales, which suggest consumer spending grew by more than 1 per
cent in the first quarter. US home sales look to be bottoming,
although house prices remain in rapid decline at least on some
measures.
In China, the official purchasing manager’s index moved back
into positive territory in March, provoking lavish celebrations
among officials under instructions to be optimistic.
A million German consumers have taken up the offer of a €2,500
incentive to trade in old cars for new, more fuel efficient vehicles,
providing a strong, if short-lived, boost to output.
Even in Japan, where the latest Tankan survey showed a big decline in sentiment to a record low, there are some hopes the world economy may be some way through an inventory correction that began in the fourth quarter of 2008.
In output terms, the first quarter will look bleak. Macroeconomic Advisers, for instance, is tracking a 5.5 per cent annualised rate of decline in the US.
But with production having declined even more sharply than global demand, there is some hope of stabilisation once businesses work off excess inventories.
“I am seeing green shoots,” says Jan Hatzius, chief US economist at Goldman Sachs. “Not in terms of the current quarter but in terms of the prospects for a quarter or two down the road.”
For the world as a whole, the most important developments relate to the US and China – and in neither case is the picture clear cut. China’s improving business sentiment combines with resilient retail sales, strong loan growth and a powerful rebound in domestic equities. But independent PMI numbers published by CLSA, a Hong Kong-based investment bank, actually fell to 44.8 in March from 45.1 in February. Exports remain in sharp decline, while profits at major enterprises are declining and house prices are still falling.
“There is some reason to think that the official PMI is overplaying the likely bounce,” said Ben Simpfendorfer, a Hong Kong-based economist at RBS.
In the US the key question revolves round whether the near-term stabilisation in consumer spending is sustainable. On the positive side, consumers are benefiting from lower energy prices, temporary tax cuts and the ability to refinance mortgages at historically low levels. But the boost from lower energy prices will soon fade. Huge wealth loss and still very tight credit conditions will weigh on spending in the months ahead.
