Global economy: ready to roll or still on the rocks?
Some hard data is now underpinning prospects for a global economic
recovery, but world leaders urge caution and at least one says the worst
is still to come for some. So should we perk up and head for the high
street, keep cash ready under the bed, or prepare for long, hard times?
Some sample figures released recently gave reason for hope.
In the United States, the world's biggest economy, key jobless claims
fell to a six-month low point, and a four-week average seen as a better
indicator also declined.
In Germany, the biggest European economy and a top global exporter,
industrial orders and output soared in May, catching analysts by
surprise. And the International Monetary Fund raised forecasts for
growth in China, the world's third-biggest economy, to 7.5 percent this
year from 6.5 percent, as well as those for the US and Japan, number two
worldwide.
Germany, Japan and the US are all believed to be at the bottom of
their worst recessions since the bitter battles of World War II.
That's the good news.
But leaders of the Group of Eight agreed meanwhile that a full
economic recovery was not waiting around the corner, US President Barack
Obama said on Friday.
"We agreed that full recovery is still a way off, that it would be
premature to begin winding down our stimulus plans," Obama told a
post-summit press conference. And World Trade Organization chief Pascal
Lamy said: "The worst of the crisis in social terms is still to come,
which means that the worst of the crisis in political terms is still to
come."
Other examples of seeing the glass half-empty or half-full were
provided by two Paris-based groups, the International Energy Agency and
the Organization for Economic Cooperation and Development.
The IEA said: "Over the past two weeks the mood has suddenly changed,
as many leading economic and energy indicators continue to show very
weak readings."
But the OECD reported the same day that some leading global economies
showed signs of improvement in May, raising the chances of recovery.
For many analysts, the key factor in determining how things will go
is a single word: credit.
"The credit outlook is the main threat that may yet turn the scant
recovery we expect into a worst-case credit nightmare," UniCredit
economists said.
Barclays Capital economist Thorsten Polleit told AFP: "Credit is
drying up and it's very unlikely that it starts flowing again as easily
around the globe as it did a couple of years ago," a phenomenon now seen
as a principal cause of the crisis.
Germany's finance minister warned of a "very serious" threat of a
credit crunch later this year and its economy minister added: "We must
prepare for difficult times and we must do it very soon."
The European Central Bank will invest 60 billion euros (84 billion
dollars) into low-risk corporate bonds to boost business finance, and
banks have been warned they could be sidestepped later if necessary to
ensure more credit got to the overall economy.
On an industrial level, Polleit said the end of the credit boom "is
going to change the production structure of major economies
substantially."
The economist explained that "by generating ever-greater doses of
credit," the global monetary system had a "formative impact on ... the
kind of jobs that were created, on the kind of products people were
buying."
He said "This is now subject to a correction."
A global recovery is nonetheless likely, though most analysts use
terms such as fragile, modest or subdued to describe it.
In Eastern Europe, which sent a chill westwards when countries like
Hungary pleaded for bailout funds last year, "the risk of nasty
surprises has been clearly receding during the last three months," IHS
Global Insight economist Ralf Wiegert told AFP. "Some countries like
Poland look pretty good" now, he said.
Banks are in better shape than after the US investment giant Lehman
Brothers collapsed in mid September, owing to massive aid and loans from
governments and central banks, but little of the windfall cash has
reached businesses.
"It is still unclear how the monetary stimulus is going to be passed
on to consumers and investors," Deutsche Bank economist Gilles Moec told
AFP.
A second key recovery factor was how goverments managed stimulus
packages which have prevented the global recession from becoming a
depression, he added. "There's a very fine line for governments to walk"
between allowing swollen public deficits to drive up long-term lending
rates, and implementing "exit strategies" too soon and choking off
growth.
"If there is a mistake either way it will be bad news," Moec said,
observing that his bank expected a "moderate" recovery.
He also said it was crucial for government stimulus measures to be
replaced eventually by sustained growth from within the economic system.
"We have to make sure the recovery evolves from a policy-induced
recovery to an endogenous recovery," Moec said. "That will be the main
hurdle for next year."
AFP
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