Krugman wonders where the recovery will come from

No movement over holiday weekend -
Krugman wonders where recovery will come from-
Little inspiration in today's data.

Good morning. A pensioner in Guangzhou, China, lost his patience after being held up yet again in a traffic jam caused by a man threatening to jump off the Haizu Bridge. Police had set up a giant airbag to catch the would-be suicide but after five hours he was still there and the road remained blocked. The Bad Samaritan decided enough was enough. He climbed up to the woolly jumper and shoved him off to a soft-ish landing on the airbag.

The non-jumper survived the fall but doctors cannot be sure how rapid his recovery will be. The same seems to be true of the global economy. Nobel prize-winning economist Paul Krugman has been one of the more prominent pessimists, saying a couple of months ago that "in the end..." the US government would have to "seize" big banks. That has not yet come to pass and Professor Krugman now feels that "the freefall has come to an end, that we've stabilised, and probably the worst of the shocks is over." On the other hand, his "big concern is that we don't hit the bottom and bounce, we hit the bottom and stay there. It's not obvious where the recovery comes from." Most of the indicators are still in the slowdown zone. They might be looking less horrid than they did a month of two ago but there are no signs of a rebound.

As expected, Friday's update kept Britain's GDP shrinkage at 1.9% in the first quarter. Any positive impact from a small improvement in Canadian retail sales was spoiled by a decline in sales excluding automobiles. IFO's survey of German business leaders, published yesterday, showed that while firms are slightly more optimistic for the future they are even less happy about current conditions than they were a month ago. Pretty well the only upbeat sentiment to be found over the last few days was among those British and US residents who were enjoying an extended bank holiday weekend.

If there was little currency movement on Friday there was even less yesterday. One-cent ranges were the order of the day and sterling's net change in the last 96 hours is no more than half a cable cent - or equivalent thereof - almost everywhere you care to look. There was a frisson of excitement among sterling's supporters this morning when Germany published Q1 GDP figures that made Britain's look good; -3.8% q-o-q and -6.9% y-o-y. The flurry did not last long once everyone realised these were just unchanged updates of the earlier estimate. Further down the list come Swiss unemployment, Euroland current account and industrial new orders for March. In the States the Case-Shiller house price index is probably still falling at more than 18% a year, consumer confidence will surely still be lacking and the Richmond Fed's manufacturing index probably still has a minus in front of it. With no UK data on the agenda the pound will be left to flounder or founder. Which will it be?

Source Moneycorp
26th May 2009