Mixed signals but encouraging signs of economic recovery

Author Tim Lyons Published 11 August 2009

So it is a recovery or not? Data released this week suggests much better figures for the US economy than predicted. While most punters (nee economists) had suggested that the GDP figures were to contract by 1.5% on an annualised basis, the reality turned out to be a 1% decline in output in the second quarter.

So when does the recovery party start? While there are lots of other figures (inventory levels, employment figures, etc) to suggest that the world’s largest economy is far from recovery, there is no doubt that the GDP figures are a sign of confidence—hopefully enough to entice investment-shy players back into the marketplace and further reinvigorate the US economy.

The difficulty remains that the global economy is story with many characters. While the US remains the world's largest economy, you cannot ignore the emergence of China as an economic powerhouse. Over the last two years there was almost no feeling of downturn in some of the larger cities of China like Shanghai and Beijing. Given the latest round of GDP figures from this economy—and from Shanghai and Beijing in particular—whatever small blip that may have been felt seems to have been overcome. But this is not to say that there aren’t intrinsic weaknesses in the structure of the Chinese economy, such as an overdependence on exports. Southern China especially bore the brunt of this overdependence in the last 18 months, but there appears to be some structural and cultural shifts to change this in the future. Domestic consumption does creep along with small growth and consumer credit also expands uncharacteristically.

Western economies like the US and the UK are in recession but others like Australia have sailed close but into the storm. China surges but some of its East Asian neighbours have retreated a little on earlier strong gains. India continues to promise much but gains are strong in some parts of the country but not in others. Eastern Europe remained a dim light, and the old economies chug along as ever.

The signals are mixed but if the GDP figures from the US are truly the ‘canary in the coal mine’ then we may be seeing the first flashes of the light at the end of the tunnel. Combined with some of the strong growth in parts of the Asia–Pacific, along with the likelihood that continental Europe may be bouncing along the bottom rather than falling further, the overall signals might finally be more positive than negative.