Strange but that's the market these days. There is no question in my mind that there is increasingly positive signs out there but it remains very delicate. Last autumn business was completely shut down and the fear factor played stretched into 2009. It's understandable because after the widespread firings and bank lending freezes it was unclear to everyone what was going to happen. Most people - at all levels - had no idea if they were going to have a job tomorrow and a very natural reaction in the workplace is to sit still and do nothing. More recently there's been a lot more activity, albeit at a much slower pace than during the end of the boom.
The concern in the business world is exactly what IMF Managing Director Dominique Strauss-Kahn is saying. There are good signs but how long will it all last? The banks suddenly look pumped up in a Barry Bonds kind of way and the stock market has increased but it still does not feel real. The increases today are all based on the banks having hit their low point and unemployment settling. The wishful thinking is all fine and good but it's going to be a hard kick when at least one of those two points falter. The Independent:
Mr Strauss-Kahn pointed to improving, but still dysfunctional, credit markets and doubts about some banks as reasons for his wariness: "The markets are not as frozen as they were one year ago, or eight months ago but they are still not functioning normally. And the recovery needs markets functioning correctly.... One of the constants of [banking] crises is that you never recover before the cleansing of the balance sheets of the financial sector."Stateside, Nouriel Roubini and Robert Shiller both see problems ahead.
Nonetheless, the IMF has raised global growth estimates for 2010 to 2.4 per cent from 1.9 per cent, and confirmed its April forecast for a 1.3 per cent contraction in 2009. It also revealed a brighter outlook for the US. It now believes that the world's largest economy will grow by 0.75 per cent in 2010, rather than staying flat, and that it will contract by 2.5 per cent this year, rather than 2.8 per cent. The IMF gives the credit to the Obama administration's stimulus packages – "increasingly strong and comprehensive".
The IMF chief acknowledged this improvement and that many economic indicators have been pointing, albeit tentatively, towards a global upturn, but reflected the misgivings voiced by G8 finance ministers after their summit in Italy over the weekend: "Their [G8] stance is that we are beginning to see some green shoots but nevertheless we have to be cautious."
