Recovery or blip

There are certainly plenty of positive noises coming out of SIBOS and a real feel that the worst of the financial and economic crisis is over but is this flag waving just a bit to soon and overly optimistic?

Over the last six months we have seen many indicators that the economies of the USA, the EU, Japan and China are doing far better than expected. The positive trends are further enforced with increased profits in the banking sector and small rises in the housing market with Stock Market indices reflecting the changed mood of investors.

All this is causing a feel good factor but is it too early in the recovery process and dangerous to relax ones guard. On the debit side of the good news are the rising unemployment figures and huge pension deficits which are clearly a destabilising factor and a huge worry for the man in the street. 

In the UK the quantitive easing strategy adopted by the Government and the Bank of England has softened the recession but at an enormous cost. Their strategy has had short term benefits but clearly there are long term problems that will need urgent fixing sooner rather than later. Without some as yet unknown windfall, the Government will be faced with the necessity of introducing very severe cost cutting measures. Cost cutting in the National Health Service and Defence will be extremely sensitive for a Government that has an election just around the corner, thus the size and range of cuts are very likely to be made after the election. The existing Government will do whatever they have to delay with the new Government already committed to take drastic action and a machete wherever they can. Although we have already seen signs of what's to come, with the proposal to introduce means testing in the UK's child benefit system, currently under review. Thus the feel good factor is likely to stop dead in its tracks next year.

Outside of the UK the prospects look only slightly brighter with the cost of Government bailouts badly affecting spending and investments. The extreme measures taken by Governments to soften the recession will have to be paid for! The tactic of spend, spend, spend will have a day of reckoning and the price could be higher than anyone realises today. The financial crisis was like no other before and the measures introduced unlike anything seen before. Therefore there is new ground being laid and an uncertainty about the outcome.

Today, most suppliers in the finance industry are talking up the good times. They would of course as they have to build confidence with their customers to spend. The research hitting the market appears to be trying to set the level of confidence at high. However, beware the interests of those peddling good times before we have seen out the bad. After all it's been just a year since the world was facing the worst recession ever and after such a short time can it really all now be history?