So, is the recession nearly over?

The latest data suggests an end to the global malaise. But what is really around the corner?
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The Independent Online

Is the worst of the recession over? Try googling it. Put "the worst is over" into the Google News search engine and the top result is a report on Google Inc's own financial results, containing some upbeat comments from the company's chief executive, Eric Schmidt.

He told shareholders yesterday that "while there is a lot of uncertainty about the pace of economic recovery, we believe the worst of the recession is behind us and now feel confident about investing heavily in our future."

Mr Schmidt may have been studying the evidence from Google's consumer barometer, which shows a surge in searches for optimistic items such as "ski holidays" and a dramatic fall in the more depressing ones such as repossessions and debt advice. Google's barometer of consumer confidence is 10 per cent up on the year.

This week's UK unemployment numbers, although showing almost 2.5 million out of work, were still much better than the analysts had expected, and revealed an improving trend. Indeed one reading of the numbers shows that they actually fell slightly over September. Improving surveys of business and consumer sentiment, some resilient results from the high street and evidence that other economies are already either emerging from recession (Germany, France and Japan) or enjoying accelerating growth (China, Australia) have helped to push the stock market into a mini bull run. London shares enjoyed their best quarter in three decades by the end of September. With the housing market, the stock market and the labour market all showing signs of stabilisation, could the end of the recession be in sight?

As the caricature of an economist would say, "yes and no". The UK's official exit from recession could be announced as soon as Friday, when official data on economic growth are released. Economists expect a very small expansion in output in the three months to September, which would end five successive quarters of contraction – the longest recession since the early 1930s, and, in its early stages an even sharper one.

The UK has lost about 6 per cent of its output in this slump – say £80bn – and it will take us to 2014, some economists claim, for output to return to the levels of spring last year. That will put enormous pressure on living standards.

Still, even a very small reading – growth of nil or 0.1 per cent to 0.2 per cent – would be sufficient to say the recession is over. It might also boost business and consumer confidence. The rate of contraction has already slowed from its nadir in the first months of this year, so in that sense the worst has been over for some months, but few households would have noticed much difference.

Politically, there may be more dividends. The Chancellor, Alistair Darling said in his Budget in the spring that he expected the economy to return to growth by the end of the year, and has stuck to that prediction even when it seemed ludicrous. Now, for a change, the Treasury may be credited with being too pessimistic about the economy's prospects, and Gordon Brown could enter the election with unemployment, although high, stable or falling and growth picking up. It might not save him from defeat, but government strategists will at last have an economic "story" to sell to the electorate.

A straw poll of economists by The Independent yesterday suggested a 60 per cent chance that we would see a positive figure next week, and Mr Schmidt and Google certainly join a growing chorus of businesspeople, bankers and economists looking towards a recovery of some sorts here and around the world.

On the back of their $3.2bn profit of the past three months, part of an astonishing bounce-back in the investment banking world, Goldman Sachs' boss, Lloyd Blankfein, was even more bullish than the googlers about the future: "Although the world continues to face serious economic challenges, we are seeing improving conditions and evidence of stabilisation, even growth, across a number of sectors".

Closer to home, Tesco's chief executive, Terry Leahy, said this month that Britain is "past the low point" of the recession and is on the path to seeing a "slow and steady recovery". He should know – almost £30 of every £100 we spend on groceries goes through Tesco's tills.

So what is driving this recovery, however weak it may turn out to be? The simple answer: our own money.

Governments and central banks around the world have poured thousands of billions of dollars of spending power into the global economy, through tax cuts, public spending and borrowing, support for the banks and so-called "quantitative easing".

Much of that money seems to have ended up supporting a mini boom in stock markets, and in some, such as the Chinese one, something resembling another bubble. Even so, the revival in capital markets is helping companies to raise more money, although there is also evidence that, like the rest of us, their priority at the moment isn't to spend or invest the proceeds but to pay off debt.

Indeed that vast debt, public and private, that haunts the West's economies, especially those that like Britain enjoyed a credit binge, promises to be the biggest drag on growth for the next decade. This "rebalancing" of the economy means we will have to wait a long time to return to the sort of conditions we got used to thinking of as normal during the long era of uninterrupted growth between 1992 and 2008.

Nor may the recovery last for long before a relapse. Early next year the British economy faces the beginning of the fiscal squeeze that could push us into a "double dip" recession, a "W-shaped recovery". The rise in VAT and stamp duty and the end of the scrappage scheme that will kick in early in 2010 will be followed by a series of hikes in income tax and national insurance; and cuts in public spending are inevitable whoever wins the next election. Thus, the growth in public-sector employment that has prevented the jobless rolls going even higher will be thrown into reverse, perhaps before the private-sector end of the economic tandem has had to chance to start pedalling properly again. Swine flu and postal strikes might also take the edge off growth over the coming months.

Interest rates will return to more normal levels by this time next year, and the generous windfall enjoyed by those with tracker rate mortgages will be eroded. Higher oil and other commodity prices – oil is heading for $80 a barrel again, double where it stood a few months ago – also threatens to throttle the nascent recovery. The momentum, in other words, is likely to be weak. The point about what little a tiny statistical variation in the growth figures will mean to most people is something that the Bank of England is keen to stress. Mervyn King told MPs last month that "even if we get small positive growth rates over the next few quarters, for ordinary people ... the recession will continue for some while, in the sense that they will be experiencing levels of demand and output, including employment, well below the levels that we have got used to."

The worst may well be over – but the best may take longer than we think to arrive. Even Google can't tell us when that might be.

Things are looking up: The long view

Stock Market

Investors are looking beyond the downturn towards a boost in profits in the years ahead. Much of the recovery has been based on volatile mining and banking stocks. It's still still way off its peaks.


The jobless rate will keep rising beyond 2.5 million for months, but the trend is easing. It looks unlikely to rival the three million-plus of the 1980s. But more than one million young people have no job.


Economists are puzzled about the stabilisation in property values, attributing it to a "shortage of supply". Further stagnation is on the cards, given the paucity of finance for first-time buyers.