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One year on
Well, happy birthday global economic crisis. One year old this week. It’s been a bumpy old year, what with the teething, the constant burping and the odd bank failure or two. But it’s a sickly child, despite bearish pundits, that might not make it to its second birthday.
Rather than continue to murder the metaphor, the simple question is: have we hit rock bottom yet? We are in a bear market. No doubt about that. The FTSE100 is off 25 per cent from its peak.
But we are not in a recession yet. Negative equity seems a certainty with house prices down by as much as17 per cent – although anecdotal evidence suggests prices have fallen much further in certain sectors. While this will be painful for many houseowners trapped with paper losses, for the first-time buyer this comes as a blessed relief. With the cost of living rising inexorably – inflation is the real hazard – the fact that at least housing is falling goes some way to balance the books.
Most fund managers are agreed: there will be a rally sometime in September/October – doubtless led by financials – before the market plummets once more to levels lower than even today. So perhaps, baby crisis, you may indeed live to see your second birthday.
Yet there is some chance – and here we can’t really talk of killing the child, so let’s move on – of a respite. The IMF now forecasts US growth of 1.3 per cent, which is much higher than its April suggestion of 0.5 per cent. Does that mean its curtains for the R word and off to the workhouse for little baby crisis? Not yet. The UK is faltering: a weak prime minister and a weaker currency are two unknown elements in an already troubled mix. The only certainty at present is uncertainty: start stocking up on baby clothes and put him down for Eton.
