Global Economic Rate Of Decline Slowing Down?

“Green shoots”, “glimmer of hope” and “light at the end of the tunnel” are three phrases economists have recently started bandying around, referring to a slowing in the deterioration of a number of economic variables, i.e. that the rate of global economic deterioration is bottoming out. This is also referred to as the so-called second derivative of growth turning positive; continuing economic contraction is the first, negative, derivative.

These claims were validated by Goldman Sachs’s (GS) Diffusion Index (a composite of 34 economic data points from across the globe) that increased to above 50 in February and March, indicating improvement.

The results of two surveys released over the past two days also seem to back up the “green shoots” claims.

Firstly, the ZEW Indicator of Economic Sentiment for Germany, considering the outlook six months hence, improved again in April to 13.0 from -3.5 in March. This was the sixth monthly gain and the first time the index has turned positive since July 2007. “Investors are growing confident that the worst of the financial crisis and recession has passed,” said Moody’s Economy.com. This ZEW Indicator has not been a bad leading indicator in the past.

Secondly, in its latest Survey of Business Confidence of the World Moody’s Economy.com reports that global business “has taken on a slightly better hue in recent weeks”. The Survey highlights that “broad assessments of current and prospective conditions have moved up measurably since the beginning of the year. It is premature to conclude that businesses are turning measurably more upbeat, but recent survey results are somewhat encouraging.”

More signals are required, but it would seem that some measures have started pointing in the direction of an economic recovery. However, the big question mark remains the magnitude and duration of the recovery.

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