Politicians and economists have been discussing the ‘green shoots of recovery’ for months. Will there be a double-dip recession? Etc etc.
It seems to me that the few bright sparks that have been fixated upon are about to be snuffed out by current global events. As a perma-bear, it is my job to be negative, but the light at the end of the tunnel is a very long way away right now.
Why?
1. I think we all know that the financial sector is still in trouble. It is better than it was 6 and 12 months ago, but still broadly in quite a weak state.
2. Public service cuts are being made in virtually every country that you care to name. Strikes are being called and held. The days of economic growth being stimulated by government are pretty well over.
3. Property markets are still very surely in the doldrums. A few reports in the UK – for example – have suggested that prices might fall by as much as 20% in the coming two years. Most Brits seem to be under the impression that the house price ‘crash’ is over. It may not yet have really begun in many countries.
4. The Eurozone crisis is far from fixed. If anything, the election results in Ireland are probably about to open the wounds again. How serious could this get? Who knows. Like many, my fingers are crossed that no further countries need a bailout, but the reality is that Portugal, Belgium and Spain are all teetering on the edge of the abyss.
5. The civil unrest in Middle Eastern countries has spooked the oil markets a little, but amazingly not that much. With demonstrations ongoing in important oil producing nations such as Bahrain and Saudi Arabia and the terrible scenes in Libya, it seems to be only a matter of time before the oil price really starts to rise.
What would be the impact on the global economy if oil prices suddenly hit US$150, $170 or $200 per barrel?
6. The earthquake in Japan. The pictures coming from Japan are heartbreaking and terrifying. I can barely imagine what the survivors are going through. But the impact on the global economy will be massive.
It seems hard to imagine that international trade levels will not be adversely impacted. It also seems hard to imagine that stock markets around the world will not take a plunge.
I can recall being involved in interviewing the Nobel Prize winning economist Paul Krugman two years ago. He described what we were facing then as ‘Great Depression 2’ and the ‘Mother of all Recessions’. Arguments could be made either way as to whether that really happened, but I think we are about to find out.
Brace yourselves. The next leg down could be a very nasty one.
