Crisis enters twilight zone, say economists
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AFP
Oluşturulma Tarihi: Mayıs 04, 2009 00:00
PARIS - Global companies continue to post losses or diminished profits, but analysts at Citigroup say the world economy has effectively entered the ’twilight zone,’ in the sense that positive and negative data will go together for some period. ’We still do not expect corporate earnings cycle to bottom out for another year,’ they say
Economic confidence polls are rising but big economies are still facing dizzying falls in growth. Companies report huge losses and job cuts but some bosses eagerly predict a change in their fortunes.
After pointing to "green shoots" of revival, economists now see the world entering a "twilight zone" - a murky period of conflicting signs before dawn, with some indicators lighting the way to a recovery even as the pain continues.
"We suspect that global equities are now back in the Twilight Zone," that is "the period towards the end of a slowdown when earnings are still falling but share prices stabilize," analysts at Citigroup said in a report.
Recent days have seen a barrage of bad news for some of the world's biggest economies, but alongside these indicators came fresh signs of economic life.
The United States said its economy shrank a massive 6.1 percent in the first quarter. Japan's central bank forecast a 12-month contraction of 3.1 percent and Germany said its recession was putting tens of thousands out of work.
But Japan also said its factory output rebounded in March, and surveys showed consumer confidence improving in April in the United States, across the European Union and in Germany, after upbeat business surveys the week before.
Positive signs
Slumping profits or heavy losses hit major oil, auto and airline companies this week, but some stressed positive signs.
Top world steel maker ArcelorMittal said profits would rebound in the second quarter after a loss of more than a billion euros and thousands of job cuts.
"The first signs of improvement in the eurozone business cycle are clearly emerging in April," said Aurelio Maccario, chief eurozone economist at Italian bank UniCredit.
Robert Brusca at FAO Economics said the U.S. economy could rebound more quickly and strongly than many expect.
"The positives are many and this is what happens in the turnaround period after recession called recovery, roughly the first four quarters of expansion," he said. "This period can show superheated growth."
Analysts said that employment levels, particularly in the United States, and the U.S. housing market - where the troubles began - were among the key things to look for as signs of a recovery.
"Job losses falling at consistent monthly levels and signs of employers investing" could herald a turnaround, said Howard Wheeldon, a senior strategist at BCG Partners. "Credit availability will also be hugely important as will new house starts and existing home sales rising on a consistent basis."
Stock markets were rattled meanwhile by the deadly outbreak of swine flu that spread around the world and threatened to complicate a recovery by depressing activity. But many economists were not moved by that prospect.
Analysts at consultancy Capital Economics played down the potential for economic contagion from swine flu, saying effective health measures were in place and citing past disease outbreaks.
"The world economy has shrugged off periodic outbreaks of avian flu for many years," they wrote. "Even in the case of SARS (a major viral outbreak in 2003), the costs turned out to be much less than initially feared." Swine flu appears more contagious than the bird flu outbreak of 2005, but uncertainty and fear about its likely impact is considered the biggest factor in stifling economic activity. The flu outbreak comes amid a crisis that started in the United States in 2007 and pushed the world into a recession which the International Monetary Fund, or IMF, said would see the global economy contract 1.3 percent this year.
The Group of Seven top industrial nations said last month that "signs of stabilization are emerging" however, and IMF head Dominique Strauss-Kahn has already called for a coordinated plan on how to prepare for an upturn.
"Of course, the fundamental outlook for profits remains dire. We do not expect the corporate earnings cycle to bottom out for another 12 months," Citi analysts said. "But this is always the case in the Twilight Zone."
After pointing to "green shoots" of revival, economists now see the world entering a "twilight zone" - a murky period of conflicting signs before dawn, with some indicators lighting the way to a recovery even as the pain continues.
"We suspect that global equities are now back in the Twilight Zone," that is "the period towards the end of a slowdown when earnings are still falling but share prices stabilize," analysts at Citigroup said in a report.
Recent days have seen a barrage of bad news for some of the world's biggest economies, but alongside these indicators came fresh signs of economic life.
The United States said its economy shrank a massive 6.1 percent in the first quarter. Japan's central bank forecast a 12-month contraction of 3.1 percent and Germany said its recession was putting tens of thousands out of work.
But Japan also said its factory output rebounded in March, and surveys showed consumer confidence improving in April in the United States, across the European Union and in Germany, after upbeat business surveys the week before.
Positive signs
Slumping profits or heavy losses hit major oil, auto and airline companies this week, but some stressed positive signs.
Top world steel maker ArcelorMittal said profits would rebound in the second quarter after a loss of more than a billion euros and thousands of job cuts.
"The first signs of improvement in the eurozone business cycle are clearly emerging in April," said Aurelio Maccario, chief eurozone economist at Italian bank UniCredit.
Robert Brusca at FAO Economics said the U.S. economy could rebound more quickly and strongly than many expect.
"The positives are many and this is what happens in the turnaround period after recession called recovery, roughly the first four quarters of expansion," he said. "This period can show superheated growth."
Analysts said that employment levels, particularly in the United States, and the U.S. housing market - where the troubles began - were among the key things to look for as signs of a recovery.
"Job losses falling at consistent monthly levels and signs of employers investing" could herald a turnaround, said Howard Wheeldon, a senior strategist at BCG Partners. "Credit availability will also be hugely important as will new house starts and existing home sales rising on a consistent basis."
Stock markets were rattled meanwhile by the deadly outbreak of swine flu that spread around the world and threatened to complicate a recovery by depressing activity. But many economists were not moved by that prospect.
Analysts at consultancy Capital Economics played down the potential for economic contagion from swine flu, saying effective health measures were in place and citing past disease outbreaks.
"The world economy has shrugged off periodic outbreaks of avian flu for many years," they wrote. "Even in the case of SARS (a major viral outbreak in 2003), the costs turned out to be much less than initially feared." Swine flu appears more contagious than the bird flu outbreak of 2005, but uncertainty and fear about its likely impact is considered the biggest factor in stifling economic activity. The flu outbreak comes amid a crisis that started in the United States in 2007 and pushed the world into a recession which the International Monetary Fund, or IMF, said would see the global economy contract 1.3 percent this year.
The Group of Seven top industrial nations said last month that "signs of stabilization are emerging" however, and IMF head Dominique Strauss-Kahn has already called for a coordinated plan on how to prepare for an upturn.
"Of course, the fundamental outlook for profits remains dire. We do not expect the corporate earnings cycle to bottom out for another 12 months," Citi analysts said. "But this is always the case in the Twilight Zone."