Are the few green shoots seen in the parched crisis landscape a sign that they may turn into daffodils? Federal Reserve Chairman Ben Bernanke told in a recent interview that the "green shoots" of economic revival are already evident. Favorable news of recovery from a few quarters have been proclaimed by some as the bottoming of the financial crisis. But from a close examination of the data, it seems that such optimism may be short lived. In other words, these green shoots may be a sort of a blip in the present tottered scenario.
The outlook can be gauged by diagnosing some key indicators that could provide the signs of a turnaround.
Let us first start with the purchasing manager’s index (PMI) which provides an idea of the operating conditions in the manufacturing sector. Euro zone powerhouse Germany which has registered the sharpest contraction in its GDP growth in nearly four decades in the first quarter of 2009 (-3.8%) saw the biggest one month gain in its seasonally-adjusted Market /BME Purchasing Managers’ Index in more than seven years. The PMI rose to 35.4 in April 2009 as compared to 32.4 in the previous month. A reading above 50 is the sign that manufacturing sector is expanding and reading below 50 provides the scenario of the contraction in the sector. In the US also the level of contraction has reduced with PMI registering an increase to 40.1 in the month of April 2009 as compared to 36.3 seen a month back. In Japan, the Nomura/JMMA PMI in April saw its largest gain in the last eight years when the index rose to a seasonally adjusted 41.4 from 33.8 in March. China saw its PMI rise for the fifth consecutive month to 53.5 (April 2009) as compared to a record low level that it had registered in the month of November 2008 of 38.8. India also saw its PMI at an expansionary phase at 53.2 in April 2009.
The confidence of businesses and consumers seems to be coming back. This can be somewhat corroborated with the different confidence indicators. In Germany, the Ifo business confidence index rebounded to the highest level since last November 2008 (85.9) to 83.7 in April 2009. The Institute of Supply Management, US also saw a boost in its business confidence with the index touching its highest level in April 2009 (40.10) since September 2008 (43.4). In a composite global survey by Bloomberg for its Professional Global Confidence Index, saw an increase in its overall index by 17.5 points in May 2009 from last month, which was the highest increment seen in a month from November 2007. In China, the business confidence has already been in an optimistic mode for the last couple of months whereas in the case of India and Japan, the index hit high level in the month of May 2009 since October 2008.
In the case of consumer confidence, Michigan consumer confidence survey of the US consumers registered its highest level since September 2008. According to Nielsen global consumer confidence index of 50 countries, only 35 percent of the Chinese citizens felt that their economy would contract. This optimism can also be substantiated by the auto sales in China which can be considered a strong indicator of recovery. According to China Association of Automobile Manufacturers, the first quarterly (2009) auto sales in China registered a 6% annual increase leading to China overtaking the US for the first time as the World’s largest auto market. In Europe, Germany’s consumers are not that certain about the economy with the GfK's consumer confidence index being steady for the last three months from February to April 2009. A confidence report across 16 nations in Europe shows that in April the consumer and executive sentiments are above the median estimate of 65.6 at 67 which is also above the March index.
In terms of retail sales the picture looks different with scarcely any green shoots. In the UK, the annual growth of total retail sales for March 2009 showed a modest increase of 1.5%. In the US and Germany the seasonally-adjusted data on retail and food services sales for April 2009 saw a decline of 0.4% and 1% as compared to previous month and a fall of 10.1% and 1.5% as compared to last year, respectively. Overall retail sales in 15 nations Euro zone also dropped. China which has been providing with overall positive news saw its retail sales climbing for the fourth consecutive month with April sales growth around 15.5% as compared to last year.
Export data provides some glimmer of hope as some bottoming out has been seen in the month-on-month data. Germany saw its export growth rise by 0.7% on a seasonally- adjusted monthly basis. However, year-on-year exports slumped by 16%. Exports in the US plummeted to a two year low in March 2009 by 2.9% whereas in the Euro zone the 16 countries saw a rise in exports for the second consecutive month in March 2009. In March, Japan also saw its exports rise as compared to previous month but on an annual comparison, exports sharply fell by 46%. China also saw it’s seasonally adjusted exports rise month on month by 6.9% in April whereas it slumped by 22.6% as compared to last year. India’s contractionary phase of exports has been continuing from October 2008 onwards with March 2009 exports plunging the most by 33.3%.
One of the areas where more weeds have been spotted than green shoots is in industrial production. Japan which is already contracting faster than other economies saw its industrial growth shrinking to 18.1 % (Q1 2009) quarter on quarter, with the year-on-year growth also contracting by 34.5%. In Germany also, quarter-on-quarter industrial growth saw a slump of 12 %( Q1 2009). However, month-on-month growth saw some relief with a flat (zero) growth in the month of March 2009 as compared to February (-3.4%). This gloominess also encompasses Europe which recorded its worst industrial growth in more than two decades in March 2009 (-20.2 %). In India also the gloomy scenario persists with the growth in the index of industrial production (IIP) being in the negative territory in the last few months with the March 2009 contraction of IIP at 2.3% being the worst in last 14 years. Deducing from China’s data it seems that daffodils would grow. In the month of April 2008, industrial growth stood at 7.3% with growth during January-April 2009 seen at 5.5%.
In terms of unemployment the scenario is not at all encouraging. In the recently released OECD data, the US, the UK, Germany and Japan all saw an increase in their unemployment rate in the month of March at 8.5% (4.6%), 6.6% (5.3%), 8.4% (7.6%) and 4.8% (3.9%) respectively as compared to last year (in brackets are the last-year unemployment rates for the same month).
There are some green shoots that can be spotted in the PMI and confidence indicators. But to consider these as turning points for the business cycle would be premature. Restructuring and restoration of the financial systems which collapsed in this crisis would take more time than that can be anticipated through these indicators. Expecting the blossoming of daffodils with these green shoots would not be right at this juncture atleast in the near future. |
