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Markets regain ground, but job losses continue

Text by Marie Sophie JOUBERT

Latest update : 2009-08-04

World stock markets are finally regaining ground and some economists believe recovery from the crisis is underway, but the massive unemployment still expected points to a real disconnect between the real economy and global finance.

From New York to London to Tokyo, the world stock markets are regaining ground. Paris’ CAC 40 recorded nine consecutive closings in the black, Wall Street has seen a 35% increase since March and Hong Kong traders a 76% rebound. Now, in late July, investors seem to be breathing a huge collective sigh of relief.

“I am certain there is a worldwide recovery,” said Oliver Griffith, president of the American Chamber of Commerce in Paris, on FRANCE 24's Face Off programme on Tuesday. “Asia is ahead and the USA is following suit. Stocks will of course fall again - it’s like a roller coaster. But these are roller coasters that are headed upward.”

After months of record losses, US and European banks are generating profits again. Some company quarterly reports are also cause for optimism. Danone, Caterpillar, Schlumberger, Apple and 3M’s quarterly results all show growth.

The phenomenon should continue, according to Griffith. “Industrial output will restart because inventories are extremely low. Demand, which fuels a large part of US GDP, will also recover”, he says, adding that consumer demand is inherent to the US mindset.

Recovery depends on China

China, because it has a lot of liquidity and can therefore stimulate its economy, has an essential role to play in pushing a rapid economic recovery. "Its banking system is not only healthier, but it is also the world’s biggest producer", said Griffith.

For this reason and despite the many differences between Washington and Beijing – trade imbalance in favour of Beijing, an under-valued Chinese currency according to Washington and human rights – US President Barack Obama on Monday called for an all-out cooperation with China.

Depressed levels of activity

"The worst of the crisis is behind us and, everywhere, production has stopped contracting”, agrees Anton Brender, associate professor at the University Paris-Dauphine and Director of Economic Studies at Dexia Asset Management, speaking on FRANCE 24's Face Off. But Brender is also more restrained in his optimism than Griffith.

“We are at depressed levels of activity… [it] will certainly recover because we’ve touched the bottom, but we have fallen very low,” he says. The German economy, praised by everybody for its recovery, is a good illustration of this, Brender adds. “Production fell to 20% below where it had been six months ago,” he says. “The recovery allows it now to be at a little less than 20%.”

For Brender, the real question is how quickly the damage of the recession on the world economy will disappear.

“In the US, unemployment will increase to 10.5% next year”, predicts Griffith, acknowledging that all is not rosy. In June, 467,000 jobs were lost, taking the US unemployment rate to 9.5%.

For the moment, the real economy is seemingly disconnected from global finance, and doesn’t appear to be recovering with redundancy plans and staggering unemployment across the world.

Date created : 2009-07-29