Are we or are we not headed for a double-dip recession? This is the question that has dominated talks at the G20 summit over the last few days.
There have been transatlantic tensions over the pace of the budget cuts in Europe, with President Obama warning the scale and pace of retrenchment in Europe could halt the growth needed for recovery. Europe, led in particular by the UK, believes that without economic austerity we can all kiss our long-term financial stability goodbye because of huge government debts.
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So, if the world’s leaders remain divided on the subject you’ll forgive me for sitting firmly rooted to the fence on this one.
That said, there does seems to be a growing confidence within the business community that the signs are positive regarding future growth rates, buoyed by a recovering US economy and some strong performances in the emerging markets.
Figures from the UK this week suggested that consumers were once again trading up and whilst larger purchases were still off the cards, buying luxury foods and drinks is once more back in vogue. The figures were backed up by market share gains for the premium retailer Waitrose.
This view was given further creedance by our interview this month with Peter McPhillips, the chief at Hain Celestial Europe. He struck a largely positive note after a tough few years for the US business on foreign soil, arguing there have been signs that convenience food and food-to-go are seeing demand return after the depths of the downturn.
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By GlobalDataThere was also a notable flurry of M&A activity – a key indicator of returning business confidence. It would be foolhardy to suggest that this constituted a trend of any sort, but the number of deals reported on these pages in the last seven days was notable nonetheless.
Ralcorp, Lantmännen Unibake and Waitrose itself were in amongst the more eye-catching headlines. They were followed up this morning by more news from Ralcorp and an acquisition by Lotte.
But, Ralcorp’s position epitomises these contradictory times – its confidence in its acquisitions far from matched by others in the market at large.
Ralcorp’s shares slumped more than 7% after the company announced its plan to buy AIPC for US$1.2bn. Ralcorp also announced two acquisitions in Canada but issued a profit warning for its fiscal third quarter at the same time.
So who is right about our economic future? The bears or the bulls? The G20 leaders came to some sort of agreement over policy direction – but it seems to me to have been a fairly woolly conclusion to pursue “growth-friendly fiscal consolidation”. As the FT points out today, surely this is more of an aspiration not a policy?
The G20 statement was followed by a report by the IMF saying that the G20 countries’ economic plans carry “serious downside risks” for the global economy. And I saw today that the US economy grew at an annual rate of 2.7% in the first three months of 2010, slower than previously estimated by the Commerce Department which had been expecting 3% versus the same period in 2009. If the US were to show signs of falling back into problems that would really send the markets reeling.
All that seems certain for the moment is a continuation of the uncertainty.
Dean Best is on holiday
