Global Confidence Increases on Signs Recession Is Nearing End

Friday, 14 August 2009

Confidence in the world economy surged to a 22-month high in August on signs the worst global recession since World War II is approaching an end, a Bloomberg survey of users on six continents showed. The Bloomberg Professional Global Confidence Index jumped to 58.12 this month from 39.13 in July. It is the first time the reading exceeded 50, which means optimists outnumber pessimists. A measure of U.S. participants’ confidence in the world’s largest economy rose to 47.3 from 29.5, the survey showed. “It’s clear the recession is over and some kind of recovery is underway,” said Nick Kounis, chief European economist at Fortis Bank Nederland Holding NV in Amsterdam, and a regular survey participant.

“We have the biggest monetary and fiscal stimulus policy in history, globally, and we’re starting to see it work. Probably the next debate will be about how strong and sustainable the recovery is.” The MSCI World Index has increased 12 percent in the past month and President Barack Obama said last week’s unexpected drop in the U.S. unemployment rate indicates the worst may be over. Nobel Prize-winner Paul Krugman said Aug. 10 that the world, now in a “rough stabilization” mode, has averted another Great Depression. The survey of more than 2,300 Bloomberg users was conducted between Aug. 3 and Aug. 7. Since the previous survey, the U.S. jobless rate declined, second-quarter growth in the U.S. and China was better than expected, and the European Central Bank held interest rates at a record low. Jobless Rate U.S. payrolls fell by 247,000 in July, after a 443,000 loss in June.

The jobless rate unexpectedly dropped to 9.4 percent from 9.5 percent. The Standard & Poor’s 500 Index closed above 1,000 for the first time since November last week. The U.S. economy will expand 2 percent or more in four straight quarters through June, the first such streak in more than four years, according to the median forecast in the monthly Bloomberg News survey. Analysts lifted their estimate for the third quarter by 1.2 percentage points compared with July, the biggest such boost in surveys dating from May 2003. In Europe, a recession is also showing signs of bottoming out. ECB President Jean-Claude Trichet said on Aug. 6 that the euro-region economy will show a “gradual recovery” followed by a return to growth in 2010. The gauge for Western Europe rose to 41.1 from 31. Slowing Contraction Manufacturing and service industries in Europe contracted at a slower pace in July and business confidence in Germany, its largest economy, rose for a fourth month.

Linde AG, the world’s second-largest maker of industrial gases, forecast business to pick up in the second half of 2009 from the previous six months, it said Aug. 3. “Government and central bank measures are starting to show an impact,” said Peter Leonhardt, an analyst at Dekabank in Frankfurt, and a regular survey participant. “Sentiment is improving much faster than expected. There’s a need to catch up after a deep slump.” In Asia, respondents were more optimistic, with the index reaching 74.2 from 59.4. Goldman Sachs Group Inc. this week raised its forecast for China’s 2009 economic growth to 9.4 percent, and said Asian nations excluding Japan will expand faster than earlier expected as well. The CLSA China Purchasing Managers’ Index reached the highest level in a year last month. Samsung Electronics Co., Hyundai Motor Co. and LG Electronics Inc. are among South Korean exporters that reported increased profits last quarter.

Asia’s Recovery

“A lot of the recovery we see in Asia is driven by government spending and restocking,” said Tai Hui, head of Southeast Asian economic research at Standard Chartered Plc in Singapore. “We need a genuine recovery or stabilization in consumer spending and private investment to ensure the slack will be picked up when the fiscal policy fades away and the restocking phenomenon disappears.” Confidence also rose in Japan, where the economy is forecast to have expanded for the first time in more than a year last quarter. Elections in the world’s second-largest economy at the end of the month may result in a victory for the opposition Democratic Party of Japan, which has never held power. The index for Japan climbed to 50 from 34.1. Bloomberg users became more optimistic on the outlook for their equity markets in the next six months. Respondents in Japan, the U.K. and Italy predict stocks will extend gains, while those in the U.S. and Germany are mixed about the direction of their markets. The global equity rally has added more than $15 trillion to the value of global stocks since this year’s low on March 9. ‘Risk Appetite’ “Risk appetite is returning to a much more normal level,” Standard Chartered’s Hui said. The U.S. dollar may weaken in the next six months against the world’s most active currencies, with the index falling to 38.8 from 43.8 in July, the survey showed. Users in Japan are divided on the direction of the yen against the dollar, with the index dropping to 50.3 from 59.6. Most respondents in Western Europe are more optimistic the euro will strengthen against its U.S. counterpart. Survey participants in the U.S., Japan and Western Europe are also more confident short- and long-term interest rates will rise in the next six months, the survey showed.

The Federal Reserve will forego raising its benchmark rate until the third quarter of 2010, according to the monthly Bloomberg survey. Bank of England Governor Mervyn King yesterday said inflation may miss the central bank’s target over the next three years, signaling investors may have to rein in expectations for interest rate increases. Globally, “it’s too early to start tightening policy,” Kounis of Fortis Bank said. “In general, it’s not something that should be considered this year.”

Source: Bloomberg