As the opening of the preliminary edition of the latest Economic Outlook says, "For the first time since June 2007, the projections in this Economic Outlook have been revised up for the OECD area as a whole compared with the previous issue." The authors give the credit for this to "massive policy stimulus and progress in stabilising financial institutions and markets."
Still, one should not make too much of the difference between this piece of news and what we got on Monday, the Paris-based organization simply forecasting a milder contraction this year (a 2.2 percent rather 2.9 percent reduction in GWP), with a return to growth next year (somewhat more robust than in the WB's guess), and virtually every page of the document reiterates the point that even if 2009Q2 may see the end to the sharp (Depression-level, as Eichengreen and O'Rourke point out) contraction of the preceding six months, we are not out of the figurative woods.
And strings are attached to such optimism as they can offer, particularly at the policy level continued loose monetary policy and supportive financial policy-read government propping up of the banks-are necessary, while governments should not be too hasty about tightening their belts, and "reemployment measures" need to be strengthened to prevent cyclical unemployment from turning structural. (The last two are not a trivial conditionalities, given the talk of austerity that already has some economists very worried.)
On top of this the authors of the Outlook warn that
the financial system may be more vulnerable to weaknesses in the real economy than assumed in the projection which in turn would have negative repercussions on growth. This risk of a negative spiral would be amplified if households and businesses were to expect that a sustained period of deflation was imminent, in contrast with assumptions behind the Secretariat‟s medium-term reference scenario . . . Other downside risks include a faster increase in bond yields due to sharply deteriorating public finances and a stronger response of household spending to higher unemployment.Additionally, unemployment levels will remain high-10 percent in the U.S. (official number; the real one's bigger, as those who've been following this blog well know) for some time to come, those hoping to find it not getting the reassurance that the U.S. is not, after all, the "new" France.
Those at least willing to consider the possibility that officialdom may be a little too quick to say the fall's bottomed out should check out this article by Joshua Holland over at Media Channel which, unlike far too much of the coverage, is attentive to the structural, long-term weaknesses of the U.S. economy, and the toll it is taking on American householders, as well as the hard facts regarding real estate, energy and other elements of the situation which might not necessarily cooperate in the promised recovery.
Over at MSNBC.com, Tim Hanson also considers another underappreciated aspect of the situation: what the crisis may mean for the unbalanced economic relationship between the U.S. and China.