The Tide Is Turning, But Is It Sustainable?

by Inya Ivkovic, MA

European, Asian and North American economies are showing signs that the worldwide recession might have run its course. The turnabouts are raising hopes, for sure, but are they enough to sound an “all clear?” Improvements in the global financial and credit markets indicate that the heavy government stimulus spending might have done the trick. But sustainable recoveries are something entirely different, mainly because the global consumer is still a “no-show,” particularly in the U.S. And until American consumers return to malls, dealerships and real estate offices, the global economy is not likely to start growing anytime soon.

What is keeping Americans at homes and their wallets shut? Simply, as long as jobs are being lost at a rapid pace, the sustainability of any recovery will remain questionable. Major retailers can certainly attest to that, as Americans have restricted their spending on almost everything except essentials. Don’t forget; so many jobs have been lost in the U.S. — approximately seven million since the recession actually begun in December 2007. And forecasts concerning the job market are not any rosier either, estimating that the unemployment rate is likely to remain high long after the economy embarks on the path of recovery. Additionally, whatever unemployment and severance benefits have been received, these are long gone and many have ravaged their savings, whatever little was actually set aside.

In the words of Allen Sinai, chief economist for consulting firm Decision Economics, “This is going to be the mother of all jobless recoveries.” No kidding! Japan is the latest major economy to report promising second-quarter results after reporting a 0.9% GDP increase. This would mark the return to growth from the country’s deepest slump since World War II. Furthermore, in the U.S., the GDP contracted at a one-percent rate for the second quarter, after plummeting 6.4% for the first quarter of 2009, the worst showing in almost 30 years, and 5.4% in the fourth quarter of 2008. Still, and reasonably so, global investors were not impressed by signs that economic growth might be resuming or at least stabilizing, as evidenced by the global stock markets zigzagging far too much for anyone’s comfort.


Adding to volatility are wide divergences between efforts to fix the problems and actual results. For example, China invested $400 billion into its economic stimulus and the country’s economy grew 6% in the first half of this year. In contrast, the U.S. put over a trillion dollars into its stimulus package, and the economy is still vulnerable. These discrepancies point to fundamental differences between China’s emerging economy and the tired and battered U.S. economy, proving once more that the mentality of ultimate consumerism has ultimate consequences. So, yes; hopes are swelling, but from where I’m standing, the realist in me is still hopeless.