This week's Economist cover story discusses the idea that it may be too early to assume that the global economy is in recovery. The illustration really captures this. Our vulnerability right now seems to be that we want the economy (and markets) to recover, so we are looking for the signs to validate our hopes are not just hopes.
"The worst thing for the world economy would be to assume the worst is over"
"THE rays are diffuse, but the specks of light are unmistakable. Share prices are up sharply. Even after slipping early this week, two-thirds of the 42 stockmarkets that The Economist tracks have risen in the past six weeks by more than 20%. Different economic indicators from different parts of the world have brightened. China’s economy is picking up. The slump in global manufacturing seems to be easing. Property markets in America and Britain are showing signs of life, as mortgage rates fall and homes become more affordable. Confidence is growing. A widely tracked index of investor sentiment in Germany has turned positive for the first time in almost two years.
All this is welcome—not least because the slump has been made so much worse by panic and despair. When the financial system was on the brink of collapse in September, investors shunned all but the safest assets, consumers stopped spending and firms shut down. That plunge into the depths could be succeeded by a virtuous cycle, where the wheels of finance turn again, cheerier consumers open their wallets and ambitious firms turn from hoarding cash to pursuing profits.
But, welcome as it is, optimism contains two traps, one obvious, the other ..."
Read the complete story here.
Source: The Economist, April 23, 2009, A Glimmer of Hope?
