If global recession is over, what will recovery look like?

The worldwide recession may have ended, judging by news on three continents this week. But a big question remains: What kind of recovery is on the way?

While many economists expect a tepid but sustainable recovery, it's a time of considerable uncertainty. Some say the rebound could be stronger than that, thanks to government stimulus and a healing of damaged credit markets. Others worry that debt-laden US consumers won't be able to regain their usual oomph – and could cause a relapse back into recession.

What's undeniable is that some welcome signs of economic life have emerged recently around the world. Some forecasters say the recession is already over, although it will take some time to confirm this assessment.

Asia leading the way

• In Asia, China's industrial output and retail sales posted gains for July, confirming that Beijing's stimulus efforts are gaining traction. That report, early in the week, was punctuated Friday by news that China's Hong Kong territory shifted from recession to growth in the second quarter of the year. India also posted a surprise jump in industrial production this week.

• In Europe, Germany and France shifted from contraction into modest growth in gross domestic product (GDP) for the second quarter. The 16-nation euro area showed a GDP decline of just 0.1 percent, a big improvement from earlier this year.

• In the US, industrial output rose faster than expected in a monthly report Friday, and economists boosted their estimates of economic growth in the current quarter.
"The [US] recovery most likely started in July," says economist Ed Yardeni, who heads an investment research firm in Great Neck, N.Y.

He sees mounting evidence that the rebound is global in scope. Significantly, at a time when US consumers remain on the ropes, much of the momentum is coming from China, he says.

The consensus view is that growth in Asia, coupled with modest but steady revival in America, will keep the global economy on an upward course.

A 'W' recession?

Mr. Yardeni sees a “W” pattern – with the economy sagging downward again before a real recovery begins – as very unlikely.

Nations around the world were hit hard last year by a plunge in trade activity – with linchpin US consumers retreating from nonessential purchases. In recent months, though, the trade picture has stabilized, and both US exports and imports edged up in June, according to number released this week.

A survey of economists by the Federal Reserve Bank of Philadelphia calls for the US economy to grow at a 2.4 percent pace in the July-September quarter.

Role of the unwilling consumer

That doesn't mean no one is in the "W" camp. Typically, most of economic growth is driven by consumer activity, and reports this week on consumer confidence and retail sales raised doubts about the health of US shoppers. And from China to Germany, many other nations rely on those same US consumers for much of their growth.

Still, the Philadelphia survey and others find that even forecasters on the pessimistic side aren't expecting a return to recession. Rather, they worry that the recovery will be unusually tepid.

Despite the headwinds, economists Richard Berner and David Greenlaw at Morgan Stanley forecast a steady recovery with 2.6 growth in the US economy next year, as government stimulus expands its reach. Even if it works out this way, though, economists say that level of growth won’t mean a rapid decline in unemployment.

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