Recovery or unjustified optimism?

Aug 6 2009 by Peter Jackson, The Journal

IF the markets are right, then it looks like we may be over the worst of the recession. Earlier this week, the FTSE closed at its highest since October and markets in the US and Europe similarly rose.

Banking giants Barclays and HSBC reported profits, and in the UK and US, manufacturing activity beat expectations. Indeed, in the UK, manufacturing activity last month rose for the first time since March 2008.

House prices are showing signs, if not of recovery, then at least of stabilising and, perhaps in anticipation of economic recovery, oil prices are rising. To add to the good news, the pound is climbing against the dollar and the euro.

Except that that is not particularly good news. If manufacturing is staging a recovery, it is likely to have been on the back of a weak pound making our exports cheaper and a strengthening pound could well choke that off.

I wrote that we may be over the worst if the markets have got it right; sadly, in these sorts of circumstances, they all too often get it wrong.

Certainly car maker BMW has said it can see few signs of a lasting economic recovery, after reporting profits down by three-quarters for the three months to June, and earlier in the week, Toyota also reported a big quarterly loss of nearly £500m. VW also reported half-year net profits down more than 80% and Renault’s loss was up from 1.58bn (£1.33bn) to 2.71bn (£2.29bn).

Close to home, we read every week of fresh redundancies and firms putting people on short time and the chemical industry in the south of the region has been particularly hard hit.

The most optimistic forecasters see the UK jobless total rising from the current level of around 2.4 million to hit the three million mark, and that can only feed back in the form of weaker demand for goods and housing.

I hope I am wrong and that the markets are right, that we are seeing green shoots and that this time next year recovery will be well under way. I fear, however, that the current recession was prompted by longstanding, deep-seated problems, largely of a spending-money-we-don’t- have nature, and that recovery will be correspondingly slow and painful.

Peter Jackson is a writer and former business editor of The Journal – p.jackson77@btinternet.com