The ‘Great Global Recession’ appears to be over. The expectation of a recovery some time this year has been driving equity and commodity markets since the spring, but in the event the turning point has come earlier than many expected.
It is now evident that a number of key Asian economies recorded positive growth in the second quarter, including China, Japan, Singapore and Hong Kong, and that the pace of contraction in the larger Western economies slowed considerably in Q2, with most now generally expected to record positive growth in the current quarter according to Bank of Ireland’s September Bulletin which was published today, Wednesday 2 September 2009.
Author of the Bulletin, Dr. Dan McLaughlin, Group Chief Economist, Bank of Ireland said: “On that basis, the global economy probably bottomed around June, and it is not surprising that forecasts for 2009 and 2010 are being revised up – the IMF now believes that the global economy will expand by 2.5% next year, against a 1.9% forecast published in April, and the consensus view is higher still, at over 3%. The outlook for the US economy has also changed for the better. GDP there contracted by 0.25% in the second quarter, but total spending actually rose marginally, offset by a large fall in inventories as firms cut production in order to shift unsold output. The latter negative influence is likely to be substantially less in the third quarter, and the consensus view is that US GDP will grow by at least 0.5%. The US housing market also appears to have stabilised and residential construction will represent a much smaller drag on activity in the second half of 2009 before turning positive next year.
“In contrast, France and Germany did record positive growth in the second quarter, signalling an end to recession in the euro’s largest economies, but the euro area as a whole did contract marginally. The most recent indicators do point to a broader European upturn in Q3, nonetheless, helped by a recovery in export markets.
“The market is now focusing on the likely shape of this global recovery and the implication for monetary policy. Some believe that the impaired nature of the global banking sector will dampen growth for some time, or even result in a fresh contraction (a ‘W’ recovery) while others argue that the scale of the international monetary and fiscal stimulus is such that a rapid and sustained upturn is possible (a ‘V’ recovery). Time will tell which proves more accurate but it is clear that the loss of output in this cycle has been unusually large, which implies that inflation is unlikely to be a problem any time soon. That being the case, Central banks are unlikely to rush to raise rates and it may be of comfort to borrowers that when rates do rise it will be in an environment in which policy makers are confident that an upturn is well and truly established”, concluded Dr. Dan McLaughlin.
2 September 2009
Dr. Dan McLaughlin
Group Chief Economist
Bank of Ireland Global Markets
Tel: 01 609 3221
Bank of Ireland
Tel: 01 604 3324