Tuesday, August 4, 2009

Green Shoots or Yellow Weeds?

We always know that when economists and even politicians talk about economic recovery – they sound overly optimistic to the point that most of us want so much to believe. So much so that no statement uttered by these people are considered complete unless they incorporate the phrase “green shoots” – this term is used to basically indicate signs of economic restoration.

Since Federal Reserve Chairman Ben Bernanke first uttered the words early this year to describe signs of a thaw in frozen credit markets, instances of the botanical metaphor in the press have climbed sevenfold. A Google search alone for “green shoots” returns 4.86 million hits (Webpage http://www.bloomberg.com/apps/news?pid=20601103&sid=a32wXMrZivDk, accessed August 04, 2009).

But can we believe the economists, these so-called experts? I don’t. And forget the politicians too – they will tell you what we want to hear. But when companies gripe about the economy – now, that’s a different matter. We should sit up and listen because they know what they are talking about. They talk the language of directness, of outspokenness because companies themselves experience these challenges.


Take carmaker BMW, for example. According to BBC News Online (Webpage http://news.bbc.co.uk/2/hi/business/8182816.stm, posted August 04), BMW has said it sees few signs of a lasting economic recovery after it reported profits down by three-quarters for the April to June period. Net profit was 121 million euros ($174m; £103m), down 76% from a year ago, with car sales down by nearly a fifth. Therefore, this is no laughing matter.

The company said that economic uncertainty made it impossible to make any forecasts for the rest of the year. "The BMW Group assumes that the macroeconomic environment will remain unfavorable during the second half of 2009," the company said. "The current business climate renders it impossible to make a reliable forecast regarding the further course of business in 2009".

Earlier on Tuesday, the world's biggest carmaker, Toyota reported a big quarterly loss after sales slumped. The carmaker made a loss of 77.8 billion yen ($818m; £483m) in the three months to the end of June. Revenue slumped by 38% to 3.8 trillion yen compared with a year earlier, with US car sales down by almost a half (BBC News Online at webpage
http://news.bbc.co.uk/2/hi/business/8182773.stm, posted August 04).

Companies do not rush in with thumbs-up verdicts. Nouriel Roubini, the New York University economist referred to as Dr. Doom for predicting the current crisis, had enlisted this phrase to temper budding optimism about the economy: ‘Yellow Weeds’

“People talk a lot about these green shoots,” Roubini said June 22. Yet looking at the economic data, he said, “I see more yellow weeds than green shoots.” Instead, he predicted the recession in the advanced economies would last another six to nine months.

Whether these are green shoots or yellow weeds, the fact remains that the unfavorable economic situation is not about to go away anytime soon – so brace yourself. It will get worse before it gets better! Life’s like that.

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