Could the choke-hold on global economy be easing?

PARIS – There are now signs the recession-imposed choke-hold on the world economy could be starting to ease as multi-billion-dollar government stimulus measures bear fruit, according to heavily qualified assessments from a growing number of analysts.

While no one is prepared to say the cloud is actually lifting, many commentators and government economists contend that the pace of the worldwide momentum slide is slowing and that a rebound is possible next year.

The evidence, they say, is appearing in routine data reports that turn out to be less grim than had been feared.

Last week, for example, Japanese machinery orders, a leading indicator of corporate capital spending, rose unexpectedly in February from January, ending a record four-month decline.

In the United States new orders for manufactured goods were up in February, after six consecutive monthly declines, by 1.8 percent. In January they had plunged 3.5 percent.

And in Germany, the largest eurozone economy, industrial production fell 2.9 percent in February in the face of weak demand. But commentators were quick to note that that performance, bad as it was, amounted to a pronounced improvement from January when output crashed 6.1 percent.

Chinese industrial production surged 8.3 percent in March after a gain of 3.8 percent in February, an indication, according to Prime Minister Wen Jiabao, that a 580-billion-dollar stimulus package is having an impact.

In highlighting such "green shoots" of recovery, analysts invariably point to what they call "downside" risks – factors that could easily derail their still tentative upbeat projections.

With millions of people losing jobs around the world, consumer confidence and willingness to spend remain fragile. Banks are still saddled with bad debts and reluctant to lend. Massive stimulus spending may prove to be too heavy a burden on public finances to be sustained. A rise in trade protectionism could snuff out chances for a global pickup.

In the last four weeks, however, stock market investors appear to have shrugged off such threats to the global outlook. A rally on Wall Street is now in its second month, with exchanges in Europe – apart from London – and Asia posting healthy gains last week.

"In terms of magnitude, the bounce in equities has been similar to some of the other bear market rallies that we’ve seen over the last 18 months," commented analysts at Goldman Sachs.

"However, this feels more substantive, given some support from improving (economic) fundamentals and more aggressive policy …"

"The most important question for investors now is whether these latest signs of green shoots are real, or at least more real than similar indications in January. We believe current green shoots have more lasting power, at least for a while …"

Goldman economists said there were now "more green shoots spread across the world relative to January" and that there were "clear indications that we may be on the cusp of production stabilisation in the US and the UK."

"Our economists believe that the first quarter could be the low point for annualised growth (or lack thereof) in many of the major economies."

Here are what some other financial analysis units are saying about global prospects.

Capital Economics: "The policy stimulus is indeed substantial. Official interest rates have been cut to near zero, central banks are creating money to purchase assets under the policy of ‘quantitative easing’, large financial rescue programs are in place, including a significant increase in resources for the IMF, and fiscal policy has been loosened across the board. Given all this it would be astonishing if there were no green shoots of recovery to be seen anywhere."

Standard Chartered: "There has been a bottoming out in some key leading indicators, supporting our expectation that the eurozone will start to emerge from recession by end-2009."

"We remain confident that Asia will see a shorter and shallower recession than the West. While China cannot save the world, it will lead East Asia out of recession and drive commodity prices higher."

The Organisation for Economic Cooperation and Development: "Although some tentative signs of improvement in the rate of deterioration in the outlook are appearing in some countries, noticeably Italy, France and some smaller OECD countries, the emphasis on ‘tentative’ cannot be overstated."

Charles Stanley Equity Research: "There remains precious little evidence as yet to confirm that the global economy really has begun the recovery process in the wake of significant monetary and fiscal stimulus.

"Continuing concerns regarding the health of the banking sector’s balance sheet, coupled with no real evidence the US property sector has turned around and a still grim outlook for corporate earnings prevail."

AFP / Expatica