Economy claws back from crisis

WASHINGTON, D.C.: The global economy is clawing its way back from synchronized recession, led by growth in Asia and a tepid rebound in other regions, Group of 20 leaders will likely affirm at their upcoming summit. The G-20 leaders will consider unwinding the unprecedented support to help recovery, but are expected to be cautious in pulling back from the massive stimulus efforts.

US Treasury Secretary Timothy Geithner said earlier this month that a recovering economy and healing credit markets would allow Washington to rein in some of its massive support for the financial system, but will keep many stimulus plans in place.

Geithner said he has seen “emerging confidence and stability” in contrast to the “crippling fear and panic of September 2008.”

Authorities were “in a position to evolve our strategy as we move from crisis response to recovery,” he said.

But Geithner added that it was not yet time to end all efforts to keep credit flowing and support recovery.

“Going forward, we must continue reinforcing recovery until it is self-sustaining and led by private demand,” he said. “The classic errors of economic policy during crises are to act late with insufficient force and then put the brakes on too early. We are not going to repeat those mistakes.”

Second half of 2009

Morgan Stanley economist Joachim Fels said his firm’s analysis suggested that “global growth resumed in the second half of 2009, with GDP [gross domestic product] surging by 4 percent annualized – twice the pace we estimated three months ago.”

GDP, a key economic indicator, is the total cost of all goods and services produced in the country in a year.

“The bounce in Asia turned out to be even more pronounced than we thought, and both US and euro area output contracted by less than expected, with Germany and France already clocking positive growth,” Fels added.

But he also argued that for 2010, “the path will still be bumpy and double-dip [recession] fears may well resurface.”

The United States, the world’s biggest economy, is widely expected to show renewed growth in the third quarter, which could mean an end to the recession that began in December 2007.

Federal Reserve Chairman Ben Bernanke said the US recession “is very likely over” technically but that it may not feel like recovery.

“It’s still going to feel like a very weak economy for some time as many people will still find that their job security and their employment status is not what they wish it was,” he said.

Major economies

Chinese authorities said they have created a “good foundation” to realize their goal of 8-percent growth for 2009.

Japan’s economy grew at an annualized 2.3-percent pace in the second quarter of 2009, after a horrific slide of 12.4 percent in the first quarter.

The European Commission now expects 0.2-percent growth in the three months to September, followed by 0.1-percent growth in the final quarter for the 16-nation eurozone and the European Union. France and Germany have already returned to growth.

“We had a synchronized swoon in the global economy and we now have a synchronized recovery,” said Jay Bryson, global economist at Wells Fargo Securities.

“All these countries had an inventory correction and implemented stimulus measures. But the question is how sustainable these recoveries are going to be.”

Largest economy

The US economy contracted at a pace of 1 percent in the second quarter after a hefty 6.4-percent decline in the first quarter.

Most analysts expect growth to resume in the third quarter at a pace of 3 percent to 4 percent and the recovery to continue into 2010. But many fear the recovery will not be strong enough to avert a slide to 10-percent unemployment, and could lead to a double-dip recession.

Brian Wesbury at First Trust Portfolios said he sees the US experiencing a “V-shaped” recovery but also questions sustainability.

“We are not forecasting the ‘immaculate recovery.’ We do not expect a long expansion [of eight or 10 years] like the US experienced in the 1980s or 1990s,” he said.

Globally, the economy still needs extra support from governments and central banks, added Fels. “Expansionary policy will still be required to keep things going,” he said.

“Policymakers are likely to keep accommodation in place until they can be reasonably sure that the recovery can stand on its own feet. We think that the latter will only become apparent from about the middle of next year, and in many cases only in 2011.” –AFP