There have been reports of real green shoots over the last few weeks. A number of leading indicators have not just ticked up but risen above the threshold signalling renewed growth ahead. Indeed one of my sprouts has turned green; and not the one I was expecting.
A reminder - I am watching three numbers which relate to three aspects of the economic crisis and using traffic lights to show when we get to "go".
Banking Crisis: I measure this crisis using the spread between the policy rate and the LIBOR, which is down to 10pb, giving our first green light. This doesn't mean that the banking crisis is over only that it has improved immensely with interbank lending taking place on near normal conditions.
Debt/Demand Crisis: The Economist poll of polls forecast for 2010 has increased to 1.1% GDP growth. Despite all the talk of growth resuming in the third quarter of this year, the majority view is that next year will see a growth rate well below trend and certainly too low to stop unemployment from continuing to rise.
Trade Crisis: The deficit/surplus of the big four still averages 5.5% of GDP. Getting better but way too high.
Are we on the raod to recovery? I think not yet. The economy in Britain and elsewhere has had a boost from the fiscal packages enacted around the world. Sadly, there remain big imbalances in the economy which need to be worked out before recovery is assured:
- The finance sector has yet to reform itself or be reformed.
- Stimulus packages begin to run out, from January in case of the UK.
- Trade imbalances remain.
- Houses and shares are seriously overpriced.
I doubt that we are close to the end; more likely we are just taking a break on the way down.