Lagging the inevitable

It is by no means nearly dawn yet, but there are hesitant signs that the global recession may be decelerating in some important areas. Among these signs there is the recovery that has been taking place in the leading stock exchanges of the world.

After the sharp drop in equity prices continued in the first three months of the year the early spring seems to have brought in some bracing fresh air. Markets hurried to recover the ground lost during 2009 and to attempt to claw back some of the losses registered during 2008.

Between the lowest recent point and current levels at the time of writing a remarkable increase of 37 per cent has been registered in the main indices.

The overall share prices recovery has been so rapid as to confuse analysts. Was this a bull phase in the continuing bear market, or was it the start of a real bull market? More than doubt, serious analysts have been expressing worry that the apparent correction is translating into a relative recovery at too fast a phase. They warn that there could be fresh trending downturns.

Movements in equity prices mirror investors' sentiment in the financial world, a reading of how the real economy will be performing. That performance is far more important to economic managers, for it is only through macroeconomic return to health that jobs can be created and wellbeing increased.

In this regard there are tentative signs that things are not getting worse. Unemployment in the United States, for instance, is not growing as fast as it had been in recent months. The added number of those seeking a job is still massive, but about a fifth below the trend of around 650,000 monthly that had been established.

China's growth rate, still sharp by western standards, is not diminishing as much as it had been doing over the previous six months or so. That also applied to India. The indicators offered by these two giant countries are important because they, more than the United States, are seen as the main modern locomotives to be counted upon to pull the global economy forward.

For all that, one has to be cautious not to welcome a false dawn. But a slowdown in the deterioration of the global economy, also evident in some areas of the EU, is important. It suggests that the fall could bottom out by around the end of this year and that slow positive growth will be resumed, though unevenly so between one country and another.

It may seem strange, therefore, that when the situation could be improving overall, the mood in Malta grows blacker by the day. The number of workers on short time is rising. The total of those registering for employment is increasing. Things began going very bad in the last quarter and have worsened in the first quarter.

Exports are dropping. It now materialises that we had been in recession - negative growth - since the second half of last year. In reality, the effect had not been much felt, at least not generally so. In the third quarter of the year it was barely felt at all. It was in the fourth quarter that the reality of our new situation began to hit home.

It did that both in the visible export sector and, in particular, in tourism. The industry had been doing well, but dipped sharply from October to December. The first reaction was akin to denial. The authorities and some analysts too pointed out that the year had been showing fast growth on 2007 and that we were "only" sliding back gently to 2007 levels.

Such reactions are foolish and help the situation not at all. Fact was that the tide had turned and the recession was, as expected, catching up with us. By the looks of it, the first half of the second quarter has also yielded bad results for our leisure industry, and there are signs that domestic consumption has also contracted further.

We would appear to be deteriorating at a faster rate than hitherto, whereas the rate of the decline in the rest of the world is slowing down. There is nothing surprising in that process. It is a well-known fact that our economy has a tendency to lag behind others, both on the upside as well as on the downside.

Six months ago some of us were purring, particularly in the political administration, that we had remarkable resilience. Our heads remained well above the waters even as others were gasping for breath. How short-sighted that was is being evidenced now that the lag is spent. We are catching up, getting to where others had been yesterday.

If the global bottom is indeed reached before too long, we shall still be descending. Again, we shall start catching up later.

It is important to understand the lead-lag nature of our economy, relative to the rest of the world. What is more important is how we attempt to manage the situation as it unfolds, to the extent that we are able to do so.