Not a V-shape Recovery

World Bank has lowered its 2009 global growth forecast to a 2.9% contraction yesterday, its first since World War II. This reaffirms our view that the global economy is unlikely to experience a V-shape recovery.

Talks about V-shape recovery started to emerge towards the end of first quarter and getting stronger into May 2009. This was due mainly to the emergence of bottoming out signs in the first quarter of 2009. The US Factory Orders turned positive in February 2009, after six consecutive months of fallings.

Japan industrialproduction also stopped its five months of declines and started to register positive growth in March 2009. China industrial production year-on-year growth rate doubled to 11% in February 2009, from less than 6% growth in last two months of 2008, and German industrial production growth rate also turned positive in March 2009 after several months of declines.

While the sharp declines in global productions have halted, there are no signs that they are moving back to the pre-Lehman crisis level. In absolute term, the US Factory Orders remained weak in March and April 2009. Although Japan Index of Industrial Production has improved in March and April 2009, it is still below its January level. German industrial production remains weak despite signs of stabilization.

A V-shape recovery will require the US, Japan and German production to grow at a very fast rate in the next few months. Even the recovery phase of the US Factory Orders during the early 2000 recession was not really a V-shape recovery.

Thus, while we believe that global economy has bottomed out, it is not likely to experience a V-shape recovery. Recovery is likely to be slow and gradual with many pitfalls along the way.

Sponsored Links