Things are looking up. Or are they?

by Ed Bowsher on 11 June 2009  |  0 comments
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We've seen several bits of positive economic news in the last few days. That's made me slightly more optimistic about things, but only slightly.

There are plenty more green shoots coming through now. In particular, the latest numbers from the National Institute of Economic and Social Research (NIESR) are undeniably positive. The think tank reckons that the economy grew by 0.2% in April and 0.1% in May.

Those figures suggest that the recession is at its end which is pretty surprising. Well, surprising to me anyway. I had always felt that the biggest financial crisis in 80 years was likely to trigger an unusually long recession.

Now it looks like I was wrong. Or was I?

Well, at the risk of digging myself further into a hole, I'm still pretty pessimistic about the economy going forward. As I said earlier this week, any growth we do see this summer has probably been driven by the inventory issue. In other words, manufacturers need to build up their stock levels which were run down during the autumn and winter.

Gloom and doom

And the inventory issue isn't the only reason to be gloomy. Here are some more:

• The US government has been having trouble funding its heavy borrowing. Yesterday, investors were reluctant to buy US government bonds which meant the bond price fell. That, in turn, pushed up long-term interest rates. If those higher rates are sustained, economies will suffer.
• The UK government may have similar problems selling bonds at some point.
• The global banking system is still shaky. Especially in Eastern Europe.
•  Massive debt means governments will have to increase taxes sooner or later.
•  Sir Martin Sorrell, the boss of advertising giant WPP, is downbeat. He told the Independent: 'If you're asking have we seen a significant change in economic conditions, [then] no, we haven't.'

Sorrell's view is important because advertising companies normally see signs of recovery or recession early on.

I can't completely dismiss the green shoots we're now seeing. I am more upbeat about the economic outlook than I was a month ago. But I'm only a little bit more upbeat. There are still massive challenges ahead.

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