Where have all the green shoots gone?

Financial Times
23 Oct 2009

The excited chatter about green shoots back in April would have led one to expect lush foliage by now. Instead the cold season has been doggedly determined to make a protracted exit, in developed nations at least – prompting some investors to take off for more welcoming climes.

The UK, among the first out in the latest round of GDP announcements, proved that even after so many mistakes, economists remain capable of shock at seeing their forecasts contradicted. The preliminary estimate that the British economy shrank by 0.4 per cent in the third quarter threw a cold shower over expectations that it had grown by 0.2 per cent.

If the UK's continued slide is particularly depressing, neither Europe as a whole nor the US can yet boast of unambiguously good economic news. True, Germany and France both grew by a modest 0.3 per cent in the second quarter, and one must hope this has continued in the third. But the strength of the euro risks snuffing out the spark of increased net exports that helped reignite economic activity.

Europeans can take heart from a healthy rise in industrial orders in August and strengthening confidence among eurozone managers in surveys released this week. But this is no guarantee of growth: the UK's purchasing managers index has been in positive territory for months. Even if Europe as a whole turns out to have escaped recession, several individual economies will still be in decline.

Across the Atlantic, the US Federal Reserve's "beige book" offers a similarly mixed message. In a series of highly hedged statements, it said manufacturing and residential real estate were slowly reviving – but commercial real estate was sinking ever deeper.

The ongoing ambivalence of official data does not ruffle investors, if stock markets are anything to go by. Indeed many have rediscovered their old adventurism. Capital is again streaming to emerging countries, whose economic spring appears to be in full bloom.

So as the US dollar slips back toward pre-crisis lows, emerging markets can put their fear of being shunned by capital behind them. Brazil this week imposed a 2 per cent tax to stem portfolio inflows. Maxis, the mobile phone operator, is preparing a $3.67bn initial public offering, Malaysia's largest ever.

The proselytisers of decoupling must be rejoicing – most of all over China, which this week announced third-quarter GDP was 8.9 per cent higher than the year before. The reliability of Chinese GDP figures is always in doubt, but this time they are as likely to understate as to overstate a growth push put on steroids by a monetary policy that puts quantitative easing to shame.

Powered by loose money, the emerging world remains brittle – and small. The world economy has yet to pull itself out of trouble.

http://www.money.ninemsn.com/article.aspx?id=919681