Global recession may be ending - BoI

The global recession may be coming to an end with the economies of most large western and Asian countries expected to grow in the third quarter, according to a Bank of Ireland report.

Dan McLaughlin, author of the bank’s September bulletin, said the “global economy had probably bottomed out in June” and that forecasts for 2009 and 2010 were now being revised up.

He said the International Monetary Fund now expects the global economy to grow by 2.5 per cent next year, up from a forecast of 1.9 per cent in April.

The US economic outlook has also improved, he added, with the housing market there having stabilised. Residential construction is expected to be a smaller drag on activity in the second half of this year, compared to the first.

“The consensus view is that US GDP will grow by at least 0.5 per cent,” he said.

He said while France and Germany had reported positive growth in the second quarter, the euro area as a whole contracted marginally.

“The most recent indicators do point to a broader European upturn in the third quarter, nonetheless, helped by a recovery in export markets.”

Dr McLaughlin said it was too early to say whether the recovery would be W-shaped – with a second contraction quickly following the first – or V-shaped, which would result in a sustained recovery.

“Time will tell which proves more accurate but it is clear that the loss of output in this cycle has been unusually large, which implies that inflation is unlikely to be a problem any time soon. “

Although the September report concentrated on international markets, Dr McLaughlin said the best that could be said about the Irish economy was “the pace of contraction has slowed”.

He pointed to live register data published by the Central Statistics Office yesterday as an example.

“The scale of job losses we were seeing in Ireland was quite horrendous: the average rise in the live register in the first quarter was 25,000 a month.” According to the CSO data this has slowed to around 5,000 a month.

Despite this, he said Ireland remained “very clearly in recession and the best hope for a recovery rests with the external environment” and demand for exports.

He added that central banks were unlikely to be in a hurry to raise interest rates until policy makers “are confident that an upturn is well and truly established”.