Hoping for optimism

Some of the most recent numbers coming out of the worlds larger economies are deeply disturbing. Last week,for instance,the US Bureau of Economic Analysis released its advance estimates of whats happened to Americas gross domestic product. From the last quarter of 2008 to the first quarter of 2009,US GDP seems to have decreased at an annualised rate of 6.1 per cent. In the last quarter of 2008,GDP had shrunk by 6.3 per cent,so signs of turn-around,or of the fabled green shoots of incipient recovery,are difficult to see. Indeed,worryingly for India,what moderated the fall was the fact that Americas imports fell quite a bit. It would seem,thus,that theres little hope for the export-oriented segments of the Indian economy to see a demand revival soon.

However,there are some encouraging facts buried within the aggregate number. For one,consumer expenditure in the US saw something of a revival: it went up 2.2 per cent in the first quarter,after decreasing 4.3 per cent previously.  In particular,spending on consumer durables goods expected to last at least three years,computers,cars,machinery increased 9.4 per cent,after going down 22.1 per cent the quarter before. Why are American consumers looking to buy durables? One hopeful explanation: the view from the trenches of the American economy is suddenly more optimistic.

Another interesting indicator comes from one of the economists on the committee that dates the beginning and end of recessions. He has amassed evidence that seems to indicate that the strongest indicator of being at the bottom of a recession is when new claims for unemployment uninsurance the number of freshly out-of-work Americans demanding assistance from their government hits a peak. Thursday the US Labour Department showed those as down for the third consecutive week. Perhaps the world economys engine is moving towards recovery sooner rather than later. But false optimism is avoidable. Look at Goldman Sachs estimates for China: even as world trade collapses by almost a tenth,Goldman has revised its forecasr of Chinas 2009 growth from 6 to 9.3 per cent. Why? The expansion of credit and firm rural demand is given as a reason. But many dissent: the turn-arounds only possible if a radical restructuring of Chinas manufacturing,to satisfy internal rather than external demand,takes place. China might find it difficult to make those changes. Indias export-dependent sector is smaller. The new governments first priority should be to look hard at the numbers that endanger it,and then help its enterprises and workers ride out the storm.