Ifo World Economic Climate brightens

Ifo: Ifo World Economic Climate brightens “The Ifo World Economic Climate Indicator rose in the second quarter of 2009 for the first time since autumn 2007. The rise in the indicator was the result of more favourable expectations for the coming six months; the assessment of the current economic situation, however, worsened again, falling to a new record low.

“The economic expectations improved in all major regions, especially in North America and Asia. But also in Western Europe, Central and Eastern Europe, Russia and Latin America the expectations for the coming six months have been clearly corrected upwards. In contrast, the current economic situation in all major regions is still assessed as markedly unfavourable, with the worst appraisals coming from North America and Western Europe.”

Source: Ifo.

Nouriel Roubini (Forbes): Don’t believe the optimists “Recent data suggest that the rate of economic contraction in the global economy is slowing down, and that we are closer than we were six months ago to the trough of the recent severe global recession.

“But while the rate of economic contraction is now lower than the free-fall and near-depression experienced by many economies in the fourth quarter of 2008 and the first of 2009, the recent optimism that ‘green shoots’ of recovery will lead to the recession to bottom out by the middle of this year – and that recovery to potential growth will rapidly occur in 2010 – appears grossly misplaced, for three noteworthy reasons.

“First, the current deep and protracted U-shaped recession in the US and other advanced economies will continue through all of 2009, rather than reach a trough in the middle of this year as expected by the optimists.

“Second, rather than a rapid V-shaped recovery, growth will remain sluggish and sub-par for at least two years into all of 2010 and 2011. A couple of quarters of more rapid growth cannot be ruled out as we get out of this recession toward the end of the year or early next year as firms rebuild inventories and the effects of the monetary and fiscal stimulus reach a delayed peak. But structural weaknesses of the US and the global economy will cause both a below-trend growth and even the risk of a reduction of potential growth itself.

“Third, we cannot rule out a double-dip W-shaped recession, with the wings of a tentative recovery of growth in 2010 at risk of being clipped toward the end of that year or in 2011. This will result from a perfect storm of rising oil prices, rising taxes and rising nominal and real interest rates on the public debt of many advanced economies, as concerns rise about medium-term fiscal sustainability and the risk that monetization of fiscal deficits will lead to inflationary pressures after two years of deflationary pressures.”

Source: Nouriel Roubini

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