Is the worst over?
The leaders of the two most influential economies in the world seem to believe so. US President Barack Obama said on Friday that he saw “glimmers of hope” in the battered US economy. Chinese Prime Minister Wen Jiabao said on Sunday that his country’s economy is showing “signs of positive change”.
Both leaders have been careful to hedge their bets. Obama added that the economy remains “under severe strain” while Wen talked about “very big difficulties”.
It is likely that the world economy is stabilizing after the steep tumble that began in September. But that does not mean it is out of danger. Excesses accumulated over at least a decade of profligacy and asset bubbles are unlikely to be squeezed out in a jiffy.
The question now is whether the world economy will stage a smart V-shaped recovery or stagnate for at least a few more quarters. The latter is more likely.
We may not stumble into a Great Depression, but the Great Recession is still a reality.