Economy still looks very shaky

by Ed Bowsher on 26 February 2010  |  0 comments
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A legendary investor thinks we could see another Lehman-style collapse later this year.

So the growth figures for the last three months of 2009 have been raised slightly. Government statisticians now say that the economy grew by 0.3% over the quarter instead of 0.1%.* So does that mean I’m more upbeat about our economic prospects?

Sadly, no. As I’ve said many times before, the next government’s obligation to sort out our public finances will be a very serious impediment to growth. And, on top of that, there’s now a real risk of a sterling crisis – in other words, the value of the pound might start to tumble due to concern that the government won’t be able service its debts. I don’t think that a sterling crisis is inevitable – far from it – but you can’t rule it out.

And if you want to get really gloomy, read this article from Citywire which has some quotes from legendary investor Jim Rogers. Here’s the scariest bit:

“Later this year we’ll see the start of the real recession, with more Lehman-scale disasters and a fallout which won’t stop until the underlying malaise is genuinely cured.”

Just to be clear, I think Rogers is probably being too gloomy. Yes, a double-dip recession looks very likely but I reckon the chances of another Lehman-style collapse are low. Second time around, central bankers and politicians should be able to head off any trouble before things get totally out of hand.

On the other hand, Rogers has built a huge fortune from trading markets and I’m just a humble journalist. Who do you believe?

* Since I wrote this post, I've read this piece by Edmund Conway in the Telegraph. He points out that this morning's ONS numbers actually show that economic output in Q4 was actually lower than originally thought.