Is The Economy Recovering Faster Than Expected?
October 11th, 2009 Posted in Canadian and Global Economy
IMF Says Recovery Looking Good
The latest news on the global economy from a widely trusted source is good news, but comes with at least one caveat. On Thursday October 1st, the International Monetary Fund unveiled a report which states that the economy is recovering faster than expected. That’s the good news. And the bad? Well, although the rate of recovery is impressive, it is not so impressive that governments should kid themselves that they can now start dismantling the schemes that got it to that point. The economy has been boosted, but largely as a result of the timely intervention of governments, and to withdraw that help now could be damaging.
Maybe it is the once-bitten twice-shy feeling that pervades much in the world today, but the possibility of calling the recession over and returning to the old rules seems too much like a gamble right now. Yes, indicators are popping off all over the world showing that countries have left their recessions behind – but each of the countries to have such positive results has in common the fact that they voted through stimulus spending at a crucial point.
The downturn has eased, the fears that we would go back to a pre-World War II style of economic austerity has receded. But then again, you would be well advised not to go shouting that in the average town center hostelry just at the moment, with unemployment still on the rise in many areas. You might also find that economic recovery does not immediately translate to easy credit availability. That is one hot potato that banks are reluctant to touch even with the longest tongs in the world.
The IMF’s report may point to a likely eventual contraction of global GDP that tops out at 1.1% for 2009, against July’s prediction of 1.4% as well as a forecast for 3.1% growth in 2010 against an earlier prediction of 2.5% – but this need not be considered to be a green light for financial fun in the New Year. The IMF has produced a report which is the equivalent of your parents telling you that you’ve done really well on your mid-term exams, but it is a little too early for you to ask to borrow the car. The recovery is, as of now, somewhat tentative and supported heavily by stimulus spending and emerging economies in Asia.
If all of that sounds like bad news dressed up as good, it is not meant to. The bullet which has just been dodged was very real and poised to do an incredible amount of damage. Without government intervention in several areas there would have been even greater strictures than those which have been suffered. What needs to be accepted and absorbed is that although the bullet has been dodged, there may yet be shrapnel to deal with. Hasty cuts at this point would be unwise, and would leave countries in recovery at risk of another recession, so 2010 will be about taking the first steps towards financial comfort.
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One Response to “Is The Economy Recovering Faster Than Expected?”
By Tom @ Canadian Finance Blog on Nov 2, 2009
I think most people find it hard to believe that the recession is over when unemployment is so high and stocks have not fully recovered.
Equally, the recovery that we have had might be overoptimistic. Many of the Canadian stocks have returned to unjustifiably high P-E ratios, though thankfully the dividend yield is still worthwhile.