Mon, Mar 30, 2009 page11

• Analysts grasp at possible 'green shoots'of recovery

  • AFP
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  Trillions of dollars lost, millions of jobs gone and more bad news to come, but the “green shoots” of recovery may just be showing in the wreckage of the worst global slump since the 1930s Great Depression, analysts say.

  Recent data, especially in the US, the epicenter of the storm, suggest that while things are very bad, they are not getting worse — and that has been enough for beaten down stock markets to bounce strongly.

  Having plunged to 12-year lows, the Dow Jones Industrial Average closed on Friday at 7,776.18 points, up some 20 percent from the trough reached on March 9 when it fell to 6,546.89 points.

  Markets have run ahead before on hopes that the worst is over only for sentiment to sour on the next batch of economic figures, leaving investors badly burned and nursing fresh losses.

  This time, however, some analysts say it may be different, that the economy is touching bottom and that the markets — which anticipate the economy’s direction 12 months to 18 months ahead — could be right.

  The slump began in mid-2007 with the collapse of the housing market in the US, the world’s biggest economy and for most analysts that is where the answer lies.

  “I would look first of all for any signs of stabilization in the [US] housing market; this is a crisis that was triggered ... by a crisis in the US housing sector,” said Aurelio Maccario, chief eurozone economist at UniCredit.

  “Any signs of recovery should come from there,” Maccario said.

  US house prices collapsed in the past 18 months as mounting defaults on subprime, higher risk mortgages pulled down the whole financial house of cards built around them, sparking the global crisis.

  But US housing starts staged a surprise jump last month from 50-year lows, easily beating forecasts, while US President Barack Obama, noting “glimmers of hope,” has pointed to cheaper home finance as a positive.

  If the US housing market is stabilizing — and analysts were reluctant to give the all clear just yet — then everything else begins to fall into place.

  More confident home owners would boost consumption, helping both US manufacturing and export-driven economies such as China, Japan and Germany that have suffered from the collapse of their main market, Maccario said.

  “It is probably too early to say ... the worst is behind us but maybe now we can afford to be more constructive than in the recent past, less pessimistic at least,” he said.

  As demand feeds through the system, it would have a multiplier effect and with employment increasing, the banks may feel more confident about lending again, easing the credit crunch sparked by the US home loan market debacle.

  China, significantly, claimed on Thursday that its own economic recovery was imminent, citing the effectiveness of its own stimulus efforts.

  “Green Shoots Have Arrived,” said a Barclays Capital note this week, arguing that recent stock market gains should be sustainable because the underlying economics have improved.

  “Policymakers in many countries have become more aggressive in their efforts to revive economic growth and financial markets,” it said.

  “At the same time, output is now falling significantly faster than demand, producing a massive decline in inventories that sets the stage for better economic readings. “Reflecting all of this, we are now recommending that investors become more aggressive and take risk across a broader range of assets,” it said.

  But what to make of all the continuing very bad economic data? On Friday alone, headlines included the British economy shrinking in the fourth quarter at its fastest pace since 1980, European industrial orders tumbling and bailed-out German lender Commerzbank posting a 6.6 billion euros (US$8.8 billion) loss for last year.

  However, among the data driving recent stock gains were US durable goods orders that unexpectedly rose for the first time last month after six months of declines.

  The 3.4 percent rise from January was the biggest increase since December 2007 and trumped forecasts for a 2.4 percent decline.

  The US government reported that consumer spending, the driver of the US economy, rose last month for the second consecutive month.
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