Opinion Sur
The world economy is clearly going through a transition period, leaving the crunch behind yet not entering full recovery. An uncertain garden where day after day new green buds sprout: the Gross Domestic Product of the major world economies is growing, the financial market is stabilizing itself, the capital market attained a 60% recovery in 2009, restoring partly US households’ wealth and, hence, their spending capacity. But certain weeds persist in the United States: unemployment has pierced the double-digit barrier; thus, fears of losing jobs remain, and consumers have not regained confidence yet; public deficit is coming closer to two-digit figures, and the economy continues to demand further support in order to keep moving ahead along the path to recovery; the housing market, the epicenter of the crisis and of economic activity, continues to fluctuate and does not manage to stabilize itself.In early November it was announced that the US gross domestic product had grown by 3.5%, half a percentage point above the forecasts of both analysts and dealers. This percentage meant, no less, the first positive result after three successive declining quarters. What most analysts had been forecasting was confirmed: the end of the US economic crunch and the much expected recovery. Markets responded to the announcement with euphoria, and the Dow Jones crossed the 10000 line, a level it had not hit since almost ten months ago.
What happened in the United States was replicated in other economies that also showed a positive growth in their GDP, some of them for the second consecutive quarter, such as Germany and France. Within this context of global recovery in most major economies, it is worth noting that, for the first time since the crisis started, a joint increase in the GDP of the United States, Germany and China was reported. This is a remarkable coincidence as these three economies constitute the great “injectors” of world economy. The three countries’ concomitant growth corroborates an encouraging global scenario and contributes to verify the hypothesis that the world would be approaching the end of the financial and economic crisis that placed the global economy at the tip of the abyss. It is still too early to pronounce the end of the global crisis, but we can certainly say that clear evidence exists to state that the crisis recessive stage has been overcome, and we are heading toward a fragile recovery that will gradually become consolidated with comings and goings in 2010, and for several years more. Many are the aspects of the economy, and basically of the financial system, that are still under the “stress” of the disturbance; it will take years for them to go back to a state of normalcy or at least to acceptable levels of operation. Last week in Buenos Aires Paul Krugman said that during the next 10 years we will witness a global economy in slow motion, with low growth.
On Friday, November 6, it was announced that the unemployment rate was more than 10%─more precisely, 10.2%. Just as Wall Street thrilled when the GDP growth was announced the previous week, depression became pervasive when the unemployment figure was disclosed. At the same time the drop in the average hourly wage and the increase in the number of people who had definitely given up on looking for a job were made public. The GDP growth simultaneously with the rise in unemployment is indicating two things: in the first place, that businesses are growing on the basis of profound restructuring plans aimed at cutting costs, increasing productivity and reducing payrolls (US productivity rose by 9.5% in the first quarter of the year, the largest increase since 2003); and in the second place that the economy continues to depend on the stimulus plans launched by the government, the implementation of which generates public spending and consumption. The first creates a situation the consequences of which will persist in the long term. When companies implement restructuring plans and, hence reduce their payrolls, they hardly ever return to the employment levels they had before the reform, all the more so when they are faced with a weak, uncertain future market. The second is highly contingent upon the existence of fiscal incentives by the government, such as the recently discontinued tax credit to buy a home. The effect of this cancellation on the drop in the number and prices of houses sold is an excellent example of the impact of fiscal incentives on economic recovery, and leads us to the question that the G-20 Finance Ministers are asking themselves: Is it time that we cut stimulus policies or, in spite of the difficulties, it is necessary to keep pumping resources into the economy to consolidate economic recovery? On November the 7th this question had a positive answer as the final declaration of the meeting says “that the economic and financial situation has improved but that the recovery is uneven and still dependent upon the support policies that governments may implement“. US Treasury Secretary Timothy Geithner stated at the end of the meeting that “the process of growing is now beginning” but warned that that putting the brakes on too quickly on the extraordinary spending programs would hurt the economy and threaten recovery. He added that the rise in unemployment to its highest level in 26 years announced on Friday “reinforces the notion that this is still a very though economic environment”.
Even though the statement of the G-20 Finance Ministers was unanimous, different positions were held at the meeting. France, Germany and Japan held a more conservative fiscal position in that the special stimulus plans implemented during the crisis should be discontinued, while the US and England were more in favor of maintaining the support programs. Most certainly, the relative weakness of the two economies is consistent with the position of not “lifting the foot off the accelerator yet”.
In conclusion, we have got to the last quarter of the year, and the economy is clearly going through a transition period, leaving the crunch behind yet not entering full recovery; with very dissimilar situations, basically between the US and Europe; with the emergence of the clear leadership of the Chinese economy, which boasts growth rates that far exceed those of the rest of the world. In this context, the greatest concern and source of debate has become “the crisis exit strategy” that are currently discussing the G-20 Finance Ministers. And, as we said before, the conclusion has been not to dismantle government support programs implemented during the crisis yet. What analysts wonder in the face of this decision is how long governments will be able to maintain such position, basically in the USA, where the public deficit is in excess of 9%.
A quarter in which green buds multiply in the uncertain garden: the GDP grows, the financial market stabilizes itself, the capital market recovers and, hence, household wealth and, hence, spending capacity increases. But certain weeds persist: unemployment hits 26-year record highs; public deficit is close to double-digit figures, and the economy demands further extraordinary support; the housing market, the epicenter of the crisis and the economic activity in the US, remains unstable.
