Monday, May 11, 2009

deflation is no longer the key concern it was only a few months ago

TO BE NOTED: From Alphaville:

‘V’ victorious

This, apparently, is the chart that “shows” the economic recovery will be V-shaped.

JPM chart of global GDP

That’s from JP Morgan and here’s the accompanying commentary (H/T TJB):

Will the global recovery by V-shaped or L-shaped? That is easy and has been settled. As the chart shows, given the depth of the recession, any return to positive growth will depict a V. The issue is whether the leg up will be as long as the leg down. Here we figure that the V is set to become quite symmetric, with the first few quarters of rebound below trend, and the following ones above trend.

That’s somewhat similar to Barclays’ recommendation to “look for a ‘U’ or a little ‘v’ “, and also Merrill Lynch, which published this tidbit Monday morning:

Some observers seem to be worrying about a “W”, that is, about a relapse into recession after a temporary recovery over the summer. We continue to think that the double-dip scenario has a low probability in, say, the next six quarters. The fiscal stance will remain highly stimulatory at least through to the end of next year. In addition, monetary policy is gaining traction via asset prices. Rather than a short-lived improvement followed by an immediate relapse, we believe it is more likely that economic conditions will improve gradually but the recovery will then gain some strength going into the final months of the year and early 2010.

Perhaps more importantly, the ‘V’ view has been adopted by the Bank of England, according to The Telegraph:

The Bank of England will this week declare that it expects Britain to enjoy a powerful V-shaped recovery as it raises its inflation forecast for the first time since the onset of the economic crisis.

In what many will judge as a landmark moment, the Bank’s Monetary Policy Committee (MPC) will indicate that deflation is no longer the key concern it was only a few months ago, as near-zero interest rates and the £125bn cash infusion from central bank money start to take root.

Ls, Ws, hooks and diminishing sine waves are out of the economic spotlight, then. For now at least.

Winston Churchill's 'V'

Related links:
Stop the rot! V for victory - The Long Room
Presenting the ‘hook-shaped’ global economic recovery scenario - FT Alphaville
What shape the US economic recession and recover - FT Alphaville

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