All the signs are that the global economy is recovering from the precipitous drop we have experienced in the past year. Jean-Claude Trichet, president of the European Central Bank, is hardly a professional optimist but he now expects a gradual economic recovery.
Meanwhile, various companies are becoming cautiously hopeful about the future – or at least that the worst is over. Carlos Ghosn of Renault/Nissan joined the club today, predicting that Nissan will return to profit in its 2010 fiscal year, which runs to March 2011.
But what will economic recovery feel like for consumers and businesses? I think it is safe to say that, while less frightening than the abrupt halt to economic activity in late 2008, the next couple of years are hardly going to be exciting – or pleasant.
Thanks party to Alan Greenspan’s tenure at the Federal Reserve, we have become used to short, sharp falls in economic activity followed by rapid recoveries. The best example was the post-2001 downturn, which the Fed addressed by cutting interest rates aggressively.
But the experience of the past few years is not typical. The recessions of the early 1980s and early 1990s did not last as long as this one has but the recoveries were slow, and did not feel very joyful to those trying to run businesses. That was even more true of the 1970s oil shock recession and recovery.
It is hard to imagine this emergence from recession being faster – indeed, there are lots of reasons to think that it will be slower. Public budgets in the US and UK are in bad shape, since governments have spent so much already on fiscal stimulus, and there is plenty of private sector adjustment to go.
It may be a recovery but, to many businesses, it will feel like the doldrums.
