Not everyone attending the World Economic Forum in New York had as negative an outlook as WPP CEO Sir Martin Sorrell (see Sorrell Sees ‘No Blue Sky’). Although the general consensus of opinion seems to be that an upturn in the economy should be expected no sooner that Q3/Q4 2002, there are some who believe that the stringent cost-cutting measures employed in 2001 may aid a more rapid recovery.
Economic growth in the US in Q4 2001 was better than analysts had predicted and led to the Federal Reserve deciding against a further cut in interest rates last Wednesday. “My view is that the U.S. recession is over, that November will be viewed as the trough,” said Gail Fosler, chief economist at the US Conference Board.
The cutbacks in spending made last year as the recession gripped, particularly in the period immediately following the terrorist attacks on the US, have left companies in the best possible position to benefit from a recovery in the economy in 2002.
Global interest rates are at their lowest level for almost 10 years, central banks around the world cut interest rates 194 times last year. A global recovery though could hinge on the rate of growth within the US, the concern is that this may not be enough to lift the world economy out of recession.
All being well, Europe’s recovery will probably take hold in the third and fourth quarters but the pace could be slower than in the US according to Klaus Zimmerman, president of the German Institute for Economic Research. “We’re struggling with the sins of the past in terms of government spending” he said.
The European Central Bank has reacted to the onset of recession in a less aggressive manner than the Federal Reserve showing a reluctance to slash interest rates in the way its US counterpart has done. The ECB lowered rates by 1½ percentage points last year, compared with the 4ÂÂź percentage points of cuts by the Fed.
The outlook for Japan, however, remains remains bleak. Bad bank loans and a deflated currency have left the country in a state of worsening economic malaise. It is though that the recession in Japan is deepening with the yen hitting three-year lows. South Korea’s Foreign Affairs and Trade Minister has expressed concern that Japan’s weakening currency is making life increasingly difficult for other export-oriented economies in Asia.
