Cautious Global Optimism

  The Group of 20, Group of Seven and the IMF and World Bank meetings couldn't do much for the world economy, except to confirm that the recession is intense and will not ease for months.But even so, there were more encouraging comments from a spate of leaders and these groups which continue to suggest that the collapse is over; although the recession persists and will do so for some months to come.Federal Treasurer, Wayne Swan said on Saturday that Australia will be dragged into recession by the global slump, but is doing better than other developed nations (as explained in Air Weekly Friday).In fact there was no talk of 'green shoots' or 'cloud breaks' from & #160;Mr Swan.He told reporters in a quick interview during the G-20 meeting that the Government faced a tough task in preparing its May 12 budget amid & quot;perhaps the most difficult set of circumstances for the framing of a budget in 75 years & quot;. & quot;There's no doubt that there's a very sharp contraction to growth in Australia and we are certainly being dragged into recession by the global economy, & quot; Mr Swan told reporters. & quot;There's no doubt the sharp contraction in global growth that's evident in many of the finance ministers' countries in the room with me today has dragged Australia into recession. & #160; & quot;But I can tell you one thing - there wouldn't be a finance minister in that room who wouldn't swap places with Australia. & quot;The contraction to growth in the developed world is well in excess of three per cent, much greater than the forecast contraction of the IMF for Australia. & quot; & quot;What it means is we have to put in place every possible stimulus we can in a responsible way to cushion the Australian economy from the effect of this global recession, & quot; Mr Swan said.Then he told the Ten Network yesterday from Washington, shortly before leaving for Australia (back this morning) that the worldwide recession is likely to be deeper and longer than previously thought. & quot;Talking to finance ministers here this weekend, it's pretty clear this recession is deep and it will probably go for longer than many had anticipated only a short time ago, & quot; Mr Swan told Network Ten. & quot;Many felt that this episode had some way to go. & quot;The treasurer said the sobering outlook reinforced the need for further & quot;urgent co-ordinated international action & quot; and continued economic stimulus on the domestic front.The Group of Seven major economies said in a statement they expected global economic activity to begin to recover later this year. & quot;Recent data suggest that the pace of decline in our economies has slowed and some signs of stabilisation are emerging, & quot; a G7 statement said. & quot;Economic activity should begin to recover later this year amid a continued weak outlook and downside risks persist. & quot;The G7 - Britain, Canada, France, Germany, Italy, Japan and the United States - said they were & quot;committed to act together to restore jobs and growth and to prevent a crisis of this magnitude from occurring again & quot;. & quot;We will take whatever actions are necessary to accelerate the return to trend growth (rates) while preserving long-term fiscal sustainability, & quot; the G7 said, apparently referring to concerns that governments are taking on too much debt to fund economic. & quot;We are right to be somewhat encouraged, but we would be wrong to conclude that we are close to emerging from the darkness that descended on the global economy early last fall, & quot; US Treasury Secretary Timothy Geithner said in a statement.Economists said it was a less dire assessment than the G7 delivered at its last official gathering in February, when leaders warned that the severe downturn would persist through most of 2009 and made no mention of promising signs of stability. & quot;Recent data suggest that the pace of decline in our economies has slowed and some signs of stabilization are emerging, & quot; the G7 said in a closing communiqué. & quot;We will continue to act, as needed, to restore lending, provide liquidity support, inject capital into financial institutions, protect savings and deposits and address impaired assets. & #160; & quot;We reaffirm our commitment to take all necessary actions to ensure the soundness of systemically important institutions, & quot; the statement said. & quot;Signs of stabilization, that's also an expression with a question mark. But we understand that the G7 statement has indirectly expressed the view that the worst may be possibly over for the world economy, & quot; said Japanese Finance Minister Kaoru Yosano.In a separate report in the Financial Times, Mr Geithner wrote that the global economy has shown signs that the worst of the recession may be easing in recent weeks. & quot;In recent weeks, there have been some encouraging signs that the global economic downturn may be slackening, & quot; he wrote. & quot;Conditions in some financial markets have improved and the decline in world trade may be abating. & quot;Some banking sector economists are talking up the recovery story after scattered reports from the housing, services and parts of manufacturing suggested that things are at least, getting worse at a less threatening pace than previously.Industry output sank further in the United States and Europe in March but less steeply than in previous months, while China's accelerated from record lows of earlier this year. & #160; & quot;PMI surveys of corporate business managers improved somewhat too across much of the world. Some of these reports on confidence will be updated this week in the US and other economies.The intensity of the slump was emphasised with the news that the stricken British economy is feeling a slump more intense than previously thought.The UK economy shrank more than economists forecast in the first quarter in the biggest contraction since Margaret Thatcher came to power in 1979.Gross domestic product fell 1.9% from the final three months of 2008 as manufacturing and business services posted record declines.That's worse than forecasts of a 1.5% fall. The fall in 2008 was 4.1%.The country's National Statistics Office said UK business services and finance shrank 1.8%, the most since records for the category began in 1983 while manufacturing contracted 6.2%, the biggest drop since 1948.Britain is the first Group of Seven nation to report first quarter GDP data. (The US reports Wednesday night, our time).Elsewhere in Europe reports told a very mixed story: Spanish unemployment hit a decade-high of 17.4%, but Germany's Ifo business confidence index rose for the first time in 11 months.In the US figures out Friday showed that the backlog of unsold new fell sharply in March in the biggest drop in more than 45 years. It was yet another report that suggested conditions in the black hole of US housing were at least moderating.Inventory levels were down a record 33.7% since March 2008, and the supply of homes available for sale shrank to 10.7 months in March from February's 11.2 months.A separate Commerce Department report showed applications for permits to build new homes were off 8.5% in March from February and 44.6% from March 2008.Economists said that fall in new permits seems to be part of the explanation for the reduction in the unsold backlog. Buyers are not lifting purchases of new houses (sales fell 0.6% in March from February), despite a fall in the average price which hit & #36;US201,400 from & #36;US208,700.February sales were weaker than originally thought and US analysts say the hopes for a rebound in the northern Spring selling season are fading.Sales of existing homes sank in March and the February increase was revised lower, suggesting no imminent bottom for housing or the 16-month recession.But housing affordability continues to improve and that remains the hope of eventually attracting people back to home buying in sufficient numbers of stabilise the sector's weakness.The report showed they rose 8.2%, compared with the 4.7% gain previously reported and which sparked some of the renewed optimism that the worst had passed for housing.A separate report on durable goods orders however showed continuing weakness persists in manufacturing, but even that was slightly better than some forecasts.New orders for US manufactured goods fell 0.8% in March, around half the 1.5% fall estimated in surveys by Reuters and Bloomberg.In Asia Friday, figures showed that the South Korean economy grew 0.1% from December, thanks to a slowing in the falls in exports and production as the impact of the Won's fall kicked in and the stimulus spending by the Government boosted demand.But it was still down 4.3% from the same quarter of 2008.The growth marked a sharp recovery from the fourth quarter of 2008, when GDP shrank a sharp 5.1% on the third quarter.Manufacturing sector fell 3.2% in the quarter, export of goods fell 3.4%, imports dropped 7%, with declines in machinery and electronic products, but the construction sector grew 6.1% in the quarter, & quot;attributable to an increase in civil engineering, & quot; following increased government spending. And services rose 0.3%.A senior official with the IMF more accurately described the data flow at the moment from the world's economies as akin to a 'break in the clouds'.That sounds more apt that the 'green shoots' many analysts have been referring to. & #160;  

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