© The Financial Times Ltd 2014 FT and 'Financial Times' are trademarks of The Financial Times Ltd.
Last updated: May 6, 2009 8:33 pm
The end of the recession is nigh, at least if you believe investment banks. Merrill Lynch talks of a “three-dimensional recovery”; Deutsche Bank says “spring is in the air”; and JPMorgan believes “the end of the Great Recession is approaching”. Sentiment has turned on the thinnest of collateralised debt obligation tranches. At the start of the year, there was talk of a Great Depression. By March, that had become the End of the World. In April, however, the global economy faced merely a stiff recession. May has now ushered forth expectations of a self-sustaining recovery. At this rate, the boom will be back by summer.
If so, the “worst” global recession since the 1930s will have been a very short one. The US recession officially began in December 2007. But the eurozone has only been in recession since last November, the UK since January and Australia since April. Typically, recessions last a year. Bad ones, which combine a financial crisis with a global slowdown, last two, an International Monetary Fund study of 122 slowdowns shows. The IMF does not expect the US to stop shrinking until 2011, which would be severe, but Ben Bernanke, Fed chairman, now expects to see a recovery by the year’s end, albeit a weak one.
Forecasters such as the IMF will usually be slower to herald recovery than investment banks, which make money from calling turning points. Boosterish and self-serving recommendations need to be taken with a pinch of salt. Lending remains weak as banks that have yet to purge their balance sheets of toxic assets try to shrink their way back to health. Unemployment is rising. And house prices, the biggest asset class of all, have in many countries, including the UK, not yet stabilised. The best one can say is that world equity markets may have troughed some 45 per cent below their 2007 peak. But break out the champagne if you like.
The US economy may be stabilising and the recession could end this year, Ben Bernanke, chairman of the Federal Reserve, said, pointing to a recent recovery in consumer spending and “signs of bottoming” in the US housing market after three years of decline.
However, Mr Bernanke warned that business investment remained weak, commerical real estate was “poor”, and the forecast of recovery depended on continued progress in healing the financial system.
The Lex column is now on Twitter. To receive our daily line-up and links to Lex notes via Twitter, click here
Lex is the FT’s agenda-setting column, giving an authoritative view on corporate and financial matters. It is also one of the few parts of FT.com available only to Premium subscribers. This article is provided for free as an example. A Premium subscription gives you unlimited access to all FT content, including all Lex articles and the FT mobile Newsreader.
If you have questions or comments, please e-mail firstname.lastname@example.org or call:
US and Canada: +1 800 628 8088
Asia: +852 2905 5555
UK, Europe and rest of the world: +44 (0)20 7775 6248
Copyright The Financial Times Limited 2014. You may share using our article tools.
Please don't cut articles from FT.com and redistribute by email or post to the web.