Global economy clawing back from post-Lehman collapse
The global economy is clawing its way back from synchronized recession, led by growth in Asia and a tepid rebound in other regions, Group of 20 leaders will likely affirm at their upcoming summit.business Updated: Sep 21, 2009 10:56 IST
The global economy is clawing its way back from synchronized recession, led by growth in Asia and a tepid rebound in other regions, Group of 20 leaders will likely affirm at their upcoming summit.
The G20 leaders will consider unwinding the unprecedented support to help recovery, but are expected to be cautious in pulling back from the massive stimulus efforts.
US Treasury Secretary Timothy Geithner said earlier this month that a recovering economy and healing credit markets would allow Washington to rein in some of its massive support for the financial system, but will keep many stimulus plans in place.
Geithner said he sees "emerging confidence and stability" in contrast to the "crippling fear and panic of September 2008."
Authorities are "in a position to evolve our strategy as we move from crisis response to recovery," he said.
But Geithner said it is not yet time to end all efforts to keep credit flowing and support recovery.
"Going forward, we must continue reinforcing recovery until it is self-sustaining and led by private demand," he said.
"The classic errors of economic policy during crises are to act late with insufficient force and then put the brakes on too early. We are not going to repeat those mistakes."
Morgan Stanley economist Joachim Fels said his firm's analysis suggests that "global growth resumed in the second half of 2009, with GDP (gross domestic product) surging by 4.0 per cent annualized -- twice the pace we estimated three months ago."
"The bounce in Asia turned out to be even more pronounced than we thought, and both US and euro area output contracted by less than expected, with Germany and France already clocking positive growth."
But he also argued that for 2010, "the path will still be bumpy and double-dip (recession) fears may well resurface."
The United States, the world's biggest economy, is widely expected to show renewed growth in the third quarter, which could mean an end to the recession that began in December 2007.
Federal Reserve chairman Ben Bernanke said the US recession "is very likely over" technically but that it may not feel like recovery.
"It's still going to feel like a very weak economy for some time as many people will still find that their job security and their employment status is not what they wish it was," he said.
Chinese authorities say they have created a "good foundation" to realize their goal of eight per cent growth for 2009.
Japan's economy grew at an annualized 2.3 per cent pace in the second quarter of 2009, after a horrific slide of 12.4 per cent in the first quarter.
The European Commission now expects 0.2 per cent growth in the three months to September, followed by 0.1 per cent growth in the final quarter for the 16-nation eurozone and the European Union. France and Germany have already returned to growth.
"We had a synchronized swoon in the global economy and we now have a synchronized recovery," says Jay Bryson, global economist at Wells Fargo Securities.
"All these countries had an inventory correction and implemented stimulus measures. But the question is how sustainable these recoveries are going to be."
The US economy contracted at a pace of 1.0 per cent in the second quarter after a hefty 6.4 per cent decline in the first quarter.
Most analysts expect growth to resume in the third quarter at a pace of three to four per cent and the recovery to continue into 2010. But many fear the recovery will not be strong enough to avert a slide to 10 per cent unemployment, and could lead to a double-dip recession.
Brian Wesbury at First Trust Portfolios said he sees the US experiencing a "V-shaped" recovery but also questions sustainability.
"We are not forecasting the 'immaculate recovery.' We do not expect a long expansion (of eight or 10 years) like the US experienced in the 1980s or 1990s," he said.
Globally, the economy still needs extra support from governments and central banks, says Fels.
"Expansionary policy will still be required to keep things going," he said.
"Policymakers are likely to keep accommodation in place until they can be reasonably sure that the recovery can stand on its own feet. We think that the latter will only become apparent from about the middle of next year, and in many cases only in 2011."