Come the recovery

Talk has turned to a self-sustaining recovery

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.

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