It is commonplace to say that not only are there as many views about the economy as there are economists, but, in fact, double that given that most economists hedge their bets with “on the hand this, on the other hand that”. So, there is no single dominant view about the short-to-medium term growth prospects of the world economy, though most now share the view that global economic recovery will now be led by the BRICS (Brazil, Russia, India, China and South Africa) while the developed economies’ triad — the European Union, Japan and the United States — will remain the laggards. A new consensus is now emerging about the triad — despite Japan’s continued below-par performance, the global economy is unlikely to experience “double dip” recession. The recovery is certainly not V-shaped, and will not be W- shaped either. It’s now widely expected to be U-shaped. The recovery from the first dip being slow, but steady.
Analysts from across a wide range of US- and Europe-based institutions increasingly say “a double dip is unlikely”. A Bank of America-Merrill Lynch Survey of Fund Managers for August 2010 shows that 78 per cent of respondents think a double-dip recession is unlikely. Westfield Group, the world’s largest owner of shopping centres by market value, doesn’t expect a double-dip recession in the US, and the Economic Intelligence Unit’s chief economist gives a double dip only a 30 per cent chance. Goldman Sachs gives a similar 25-30 per cent chance for a double dip, while a Reuters poll of 250 economists puts the odds of a US double-dip recession at just 15 per cent, unchanged from a month ago.
Three factors are shaping this new optimism. First, the increasingly good news from Europe, where German economic recovery and export demand is driving growth; second, domestic demand recovery in the US; and third, the bottom line, the strong performance of Brazil, China and India. Mark Mobius of Templeton Asset Management was more bullish than most when he declared last week that “global economic recovery” is “well in place”, drawing attention to the fact that the MSCI index of 21 developing nations has doubled since it bottomed out in March 2009. Market analysts, macro-economists, central bankers and investors around the world are increasingly united in taking the view that the threat of a W-shaped double-dip recession is well and truly behind us. One must, of course, discount for the herd mentality in all such consensual forecasts. Barring the iconoclasts who like sounding different, most analysts tend to become victims of the herd mentality in forecasting. Nevertheless, the fact that the herd is running up the hill rather than down is in itself a matter for confidence building.
What is truly remarkable about the recent episode of a sharp global slowdown and modest recovery is that most countries have avoided the trap of beggar-my-neighbour trade policies. Most economies have resisted protectionism and have remained open to trade. They should continue to stay the course and keep faith in the multilateral trading system.