5 Reasons to Think Twice about Economic Recovery

5 Reasons to Think Twice about Economic Recovery

Around the world the recession is easing, or, at least according to economic indicators that is what is happening.

Much of Europe emerged from recession in the second quarter, including the big duo of France and Germany. Most of the rest followed in Q3 including Italy. US GDP grew 0.9% in the third quarter, and Italy’s an impressive 1%. Slovakia has also performed impressively; with growth of 1.6% in Q2 and 1.1% in Q3.

But we all know the situation is not so rosy everywhere in the world. Romania is fighting for its very survival and the UK failed to see any positive growth in the 3rd quarter — despite the positive data including 2 monthly rises in consumer spending.

None the less, already the recovery is sufficient to be increasing activity and demand for overseas property. This is from the people well off enough that the crunch hasn’t affected them, but still worried that they might be if it got as bad as many people were forecasting. Now it is clear it is not going to get that bad, people are back out there and buying again.

But is it really clear that the worst is over? Is the worst over? Here are 5 reasons why we shouldn’t count our chickens before they have hatched.

1: Too Much Positivity is a Bad Sign

It is a commonly held theory (and some even say a trend) in the stock markets and investment circles, that too much positivity (bullishness) means a downturn is looming. Right now there is almost as much positivity around as there was at the height of the last boom. Some investment analysts and many more pundits say this means that the second downturn of a W shaped recovery is currently looming.

2: This is an Upturn, Not a Recovery… Yet

According to recent reports by the International Monetary Fund and the World Bank, the current positive data represents a definite upturn in the global economy, but a lot of work is still needed by governments and central banks around the world to turn it into a full-fledged recovery.

Therefore too many consumers investing and spending too heavily now, believing that this is the recovery, may cause governments to believe it as well, meaning that they will not make the tough decisions necessary to ease us out of stimulatory measures and back into normality.

3: Domestic Changes, Unilateral Economic Decisions and Policies

In the last few years we have all been left with no uncertainty over just how tied together the global economies are. That is why there is so much relief — and resentment — that they are working together through platforms like the G8 and the G20 to try and improve the economy into the future.

However, this also leaves us vulnerable to domestic, unilateral decisions made by any of those countries, especially the main players in the G8. They talk of cooperation but when the chips are down it is still every country for itself.

This was seen clearly when the crisis first began to impact on the EU. EU leaders were frantically trying to make sure that none of them would act unilaterally, make a decision or enact a policy that would affect all of them, without discussing it first. Meanwhile several of the leaders most active in trying to stop such decisions and policy making, were busy making them.

I remember German Chancellor Angela Merkel making a statement on how no country should act independently, and then the next (or very shortly after) announcing the unilateral decision of a major stimulus for German banks.

4: Elections

For obvious reasons then, elections in one country, again especially the major players, can have a very real impact on the global economy. For example the UK has an election coming up, and the Conservative Party (Tories) is widely tipped to win (support from the Sun aside). The Tories have made it very clear that the current level of fiscal spending cannot be sustained, and will not be continued under their regime.

Such a massive change in the direction of politics in the UK could reverberate throughout the world’s economies, and have god knows what other effects it will have on the next level of connection.

Some people will be doubtful of this, luckily most of the banking sector should be out of the woods by the time the election comes, but who knows what effect Tory decisions could have on the state owned banks. Certainly something to consider given how the collapse of US banking, collapsed banking in several other countries in almost one fell swoop. Then you have the value of Sterling to consider.

Any dampening of the UK economy would also undoubtedly affect British demand within overseas property markets.

5: We are talking about the Global Recovery Here

The very fact that we must talk about the global recovery, tells us the magnitude of this crisis. Most of the countries directly affected have endured worse recessions that they have seen since WWII, many more the worst in 30 years or more. Almost every country has felt the effects of this crisis.

That is a lot of pieces to put back together again. There are luckily some very clever people in the IMF, World Bank and other think-tanks on how to do it, but since when did we rely on economists being right, and then the government aren’t forced to listen.

So, while there are clear signs that recession is not going to be as bad as economists (pundits, soothsayers and doomsday-sayers) around the world foretold, it is still way too early to be breaking out the champagne to recovery.

Article written by Liam Bailey (@WriteAProperty) of Property Abroad.com