Is the recession over?

by Ed Bowsher on 08 June 2009  |  3 comments
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A majority of City economists think the recession is about to end.

A majority of City economists think the recession is about to end, according to a poll by the Financial Times.

The FT surveyed 20 economists. 11 of them think the economy will stop contracting this month and is likely to start growing in the near future.

Here's a quote from one of the economists, Alan Clarke of BNP Paribas: "The outlook for gross domestic product over the remainder of the year has improved dramatically...the recession is over."

But Clarke then adds: "Growth is likely to remain potential for some time. In turn, this points to ongoing increases in unemployment...things will still feel awful for a long time."

This chimes with a post I wrote last month: Recovery will be sluggish.

I said then that I didn't know when the recession would end, but when it did end, I was convinced that the recovery would be slow.

That's still my view, and if growth is sluggish, unemployment will probably continue to grow and that means house prices will probably stay low too.

So the only issue is whether the economy will start to grow again this month. If we do see growth, it will be an inventory-led recovery. Let me explain....

As terrified consumers stopped spending last autumn, manufacturing companies quickly found that the amount of stock in their warehouses was rising. If your inventory (stock) levels are rising, you have to reduce or stop production sooner or later. That's what happened in late 2008.

But we're now at the stage where inventory levels have been run down, so manufacturers are producing more goods, and that could mean we'll see economic growth in June.

But don't think that means the good times are back. They're not. Yes, some manufacturers are rebuilding their stock levels, but I don't think the demand from consumers is going to soar anytime soon. People have been scarred by the last year; they'll want to save and pay down debt. The government will be in the same boat.

What's more, our financial system is still weak, and we face a looming pension crisis.

Even if we do see economic growth this month, I wouldn't be at all surprised if growth fell back below 0% in the next few months.

Ah well.....