Saturday, 29 August 2009

The shape of the (past?) recession

As almost all the media jauntily proclaimed the end of the deepest post-war recession, those more down-to-earth are trying to foretell the most probable scenario of the upcoming rebound. Almost everyone, with Ben Bernanke on the fore, sees future in the bright colours, without even glancing at the foundations underlying the frail world economy. The most substantive article on the recovery can be found in the last week’s issue of “The Economist”. There, as the parallels are drawn, the sceptical journalists make an attempt to foretell the near future, basing their predictions on the facts, not only good moods. As they point out, there are three most possible scenarios of the revival, for which stand the three consecutive letters of the alphabet – U, V and W.

U – is the most unlikely to happen (contrary to the article!). The shape of the GDP chart should resemble more a bowl, than an ‘U’ letter, what illustrates the sharp decline, followed by relatively long (one and a half year as I suppose) period of diminished economic activity and later a rebound – here the whole part of the cycle lasts longer and takes place rather gently, what does not have to mean less painfully.

V – is what optimists see – the economics indicators have been plummeting for quarters, the scale of contraction was huge and this ought to be reflected in the rebound (as the stock exchanges have already anticipated). This picture is relatively simple, not to say oversimplified and seem to be drawn without a deeper look at the state of affairs of leading economies and merrily omits some data, described below

W – is what I’ve leant towards (currently I’m at loss) looking at some other alarming factors. Take into account worsening banks’ credit portfolios, the number of bad debts, ticking time bomb of unpaid credit cards, decline in investment activity of the companies, tightened creditworthiness criteria, rising (also seasonal) unemployment, job insecurity. In the world I would add boosted by speculators oil prices and still high write-offs made by banks worldwide. Hang on, you can read about it in the press (e.g. Gazeta Wyborcza) almost every day, but those news which herald the glum scenario are outshined by the euphoric visions with no room for such harbinger…

The theory of second wave is still within the realms of possibility, moreover, unsustainable and rapid growth would seriously endanger the recovery. I don’t take pleasure in being a prophet of doom, but the key issue in dealing with critical situations is being prepared for the worst. I sincerely hope that as the economists claim the worst is over and personally I’d rather see a tick-mark recession than a V-shape – I want the growth to be even modest, but sustainable and based on sound foundations.

Finally, our prime minister and minister of finance boasted about the recent figures of Poland’s GDP growth in the second quarter, surprisingly high and the nest in the EU. Good for them that they didn’t succumb to the pressure from the opposition and held off on increasing government spending. For me they should take more hard-line stance – do not yield to the brinkmanship of trade unions, lobbyists, politician in the privileged position of being not in power, what means being able to pull the ruling party up for all deeds and misdeeds and telling “we would do it better”. Why are they so complacent? In fact their biggest merit is that they did so little and managed to resist from tinkering with the economy. In our country the growth was worked out by our bare hands, not by the massive stimulus packages, in Poland politicians didn’t have to resuscitate the corpse, our economy rode out the biggest slump in its post-1989 history alive and did not shrink. Why? Weak zloty, rather high consumer confidence, lack of quick government’s reaction?

No comments: