Tuesday, June 16, 2009

Is the global recovery set to begin?

The worst is over for the global economy and a recovery is likely to begin later this year, says a bank report released here.

The global economic crisis has bottomed out and positive indicators have begun to emerge, said the report by the Royal Bank of Canada which is the top bank in the country. It said there were encouraging signs for global recovery as the US economy was showing signs of recovery after worst-ever declines in its GDP in the last quarter of 2008 and the first quarter of 2009.

Thanks to low interest rates, an easing in credit crunch and Obama's fiscal stimulus package, the US housing market is already showing some stability, it said. This, coupled with rising consumer confidence, hints at a moderate recovery for the US economy by the second half of 2009, the report said.

"The benefits of significant fiscal and monetary policy stimulus (in the US) are starting to have traction," said RBC chief economist Craig Wright. He said, "There is an unprecedented amount of money bolstering the world economy."

"What we will be watching is the impact this spending has on labour markets, as well as household and business confidence. The degree of impact will be a crucial factor in shaping economic recovery."

Though the recession has thrown six million Americans out of jobs - pushing the unemployment rate to a record 9.4% in 25 years, the recent data suggests that this rate has started declining, the report said.

It said home sales in the US are also poised to pick up as affordability improves.

But the most potent indicator of the onset of recovery was that US consumer spending has increased after six months of decline.

This trend will continue in the second half of 2009 because of low interest rates, firmer credit markets and fiscal stimulus, the report said.

About Canada, the report said its economy will shrink by 2.4% this year. With over 360,000 jobs lost nationwide since October, consumer confidence will remain low as the unemployment rate peaks at 9.2% by the end of 2009.

The report forecast that the Canadian dollar, which has rallied 15% since March, will hover between 85 to 92 cents US for the remainder of this year.


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