Belfast Telegraph

Don't bank on recovery yet ...

By Brendan Keenan

Perhaps it wasn't so special after all. The recession, I mean. Okay, it is pretty special here. It is odd that figures from America suggest a recovery is under way and, on the face of things, it is a pretty typical recovery.

According to official data pulled together by The New York Times, this recovery was heading along the same path as the earlier ones, but it eased off at the beginning of last year. Was this the eurozone crisis?

One cannot say for certain. It is, of course, of vital interest to Obama. It is typically four years before a recovering US economy has recorded what might be regarded as average trend growth of 2.5% a year. Four years is the presidential term. Obama became president six months after the economy turned up and it was always going to be a close run thing as to whether they did sufficiently to secure re-election.

Obama seems to be doing well in the polls at this stage, given the speed and depth of recession and the numbers of jobs lost - the labour force has fallen by 2.5m.

But employment itself is now growing. The January figures showed a gain of 243,000 jobs.

Private sector jobs have risen by 3% since the recovery began, on a par with 2001 but a lot better than 1991.

So what kind of recovery can be expected this time? The US figures are instructive, to put it no higher than that. A second glance confirms that this time is indeed different. The striking thing is the difference in the components of recovery. The 5% growth in personal spending is much weaker than in the past two episodes and government spending is 3% down on 2009, whereas it remained fairly steady in 1991-94 and was 6% higher by 2004.

And then there is housing. Purchases have been stagnant for the past three years, whereas they were up 30% at the same stage of the earlier recoveries.

Employment has still done better than 2001. Taking all of that into account, it might seem strange that growth in GDP compares so well with the other two. The explanation is a stronger recovery in private investment - housing apart.

It is 17% up on 2009, which is about half as much again as at a similar stage of the 1991 recovery. After the 2000 recession, investment had shown no growth by 2004.

Just as in the US, government and construction will be a drag, and consumers of little help. Unlike the US, domestic private investment shows no sign of recovery.

When Irish firms are ready to invest, they are more likely to want bank finances than use their own money or seek market funding.

A return to normal banking is not yet in sight. Until it is, recovery is unlikely to come into view either.