Global economic crisis coming to an end
The global economy may be coming out of the worst recession since World War II as record-low interest rates and trillions of dollars in fiscal stimulus spur demand.
Sales of existing U.S. homes jumped in July to the highest level since August 2007, and German service industries expanded this month for the first time in almost a year, reports yesterday showed. The Japanese economy grew for the first time in five quarters, according to a report earlier this week.
“There is no question the global economy is healing and emerging from recession,” Kenneth Rogoff, a Harvard University professor and former chief economist for the International Monetary Fund, said in a Bloomberg Television interview yesterday.
Federal Reserve Chairman Ben S. Bernanke and other global policy makers cautioned that the recovery is likely to be muted, indicating they would not soon remove all the stimulus injected into the financial system.
“Strains persist in many financial markets across the globe,” Bernanke said in a speech yesterday at the Kansas City Fed’s annual symposium in Jackson Hole, Wyoming. “The economic recovery is likely to be relatively slow at first, with unemployment declining only gradually from high levels.”
The U.S. housing market, which led the way into the recession, is showing signs of righting itself after almost four years of declines. The 7.2 percent rise in sales of existing homes last month was the biggest since the National Association of Realtors began keeping records in 1999.
U.S. stocks gained for a fourth day, sending the Standard & Poor’s 500 Index to the highest level since October. The S&P 500 added 1.9 percent to 1,026.13, giving it a 2.2 percent advance this week. The dollar and Treasuries fell, while oil rose to a 10-month high.
The news yesterday followed a report earlier in the week that single-family housing starts rose in July for the fifth consecutive month to reach the highest level since October.
“Although some of our markets are still stuck in the mud, many are improving,” Robert Toll, Chairman and Chief Executive Officer of Toll Brothers Inc., told Wall Street analysts on Aug. 12. “It does feel as if the fence sitters are looking for reasons to jump in on the side of buying.” Horsham, Pennsylvania-based Toll is the largest U.S. luxury homebuilder.
Demand has been boosted by government tax credits for first-time buyers and near record-low borrowing costs engineered by the Fed, which has coupled a cut in its benchmark interest rate to near zero with purchases of mortgage-backed securities.
The index of U.S. leading economic indicators, which is supposed to presage activity three to six months ahead, rose in July for a fourth consecutive month, the New York-based Conference Board reported on Aug. 20.
In Germany, Europe’s largest economy, “business sentiment among service providers strengthened in August and was the most positive since January 2006,” Markit Economics said yesterday, pointing to its purchasing managers’ survey.
“The recession is over,” said Klaus Baader, chief European economist at Societe Generale SA in London, who called the Markit data an “incredible reading.”
German investors are also upbeat. Their confidence jumped to its highest level in more than three years in August, the Mannheim, Germany-based ZEW Center for European Economic Research said on Aug. 18.
Chancellor Angela Merkel, who faces national elections next month, is spending about 85 billion euros ($122 billion) in an effort to rekindle economic growth, including a 2,500-euro payment for consumers who scrap an old car and buy a new one. New-vehicle registrations in Germany rose 23 percent in the first five months of 2009 from the year-earlier period.
Japan’s economy is also being boosted by government measures ahead of an election. Prime Minister Taro Aso, whose party is trailing in opinion polls before the Aug. 30 parliamentary elections, has put forward a 25 trillion yen ($265 billion) stimulus plan.
The 3.7 percent rise in Japanese gross domestic product in the second quarter followed an 11.7 percent contraction in the first three months of the year. Exports led the revival of the world’s second-largest economy last quarter, jumping by 6.3 percent.
The IMF may increase its forecast for the global economic rebound next year as signs of growth return, John Lipsky, the fund’s first deputy managing director, said yesterday.
The Washington-based lender last month predicted the world economy will expand 2.5 percent in 2010 after contracting 1.4 percent this year.
“We’re on track in broad terms for the kind of recovery we had anticipated,” Lipsky said in a Bloomberg Television interview from Jackson Hole. “But to get that recovery requires continued policy effort — accommodative monetary policy, stimulative fiscal policy — to make sure that growth shows up.”
European Central Bank President Jean-Claude Trichet sounded a similar note, telling the Jackson Hole conference that it’s too soon to say a recovery can be sustained and that policy makers need to maintain efforts to restore confidence.
“We know that we have an enormous amount of work to do and we should be as active as possible,” Trichet said. The ECB has cut its benchmark interest rate to a record 1 percent and is buying covered bonds and flooding banks with money.