Is the Recession Over?

There are encouraging signs that the world’s economic prospects, which seemed so awful during the depths of the banking crisis, might be improving! Some are even saying the recession could be over. GDP rose in the second quarter of this year, and manufacturing production grew in August for the second month running. With low interest rates and stabilising house prices, consumer confidence has not collapsed as many feared and most people are still spending money even if they are slightly more cautious than before. The stock market continues to grow as well. The Organisation for Economic Co-operation and Development is now predicting that the global economy will emerge from the downturn faster than previously thought. But even if the worst is over, serious difficulties lie ahead. World trade volumes are growing, but the increase is heavily concentrated in large emerging markets, such as China and Brazil. In the industrialised West, protectionist pressures remain strong. Although there has been a rise in the number of jobs being created, unemployment will continue to grow for another year or so, pushing up the cost of welfare. Furthermore, the Government has racked up vast debts that will have to be repaid partly by cutting the spending Gordon Brown so recklessly allowed to grow when he was at the Treasury, to the detriment of this country’s public finances. Fundamental problems remain in the financial system, too, which are being masked by the injection of substantial sums of taxpayer’s money. Sooner or later, the taps will have to be turned off, or inflation will become a problem once more. Even if Britain is emerging from recession, there will still be a painful reckoning. As Alistair Darling cautioned yesterday, it is far too early to be putting out the flags.