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GDP’s “statistical recovery”

Chemical companies, Consumer demand, Economic growth, Financial Events, Leverage
By Paul Hodges on 23-Aug-2009
GDP Aug09.jpg

The blog is very interested to see the different outlooks being proposed by central bank heads. US Fed Chairman Ben Bernanke claimed Friday that the financial crisis was due to “panic”, rather than fundamental problems such as reckless lending. As a result, with the “panic” over, he now saw the potential for securing “a sustained economic recovery”.

But at the same meeting, European central bankers were more cautious, believing that the world economy still faced major problems:

• Germany’s Bundesbank President Axel Weber said it was “too early to say it won’t be a bumpy road ahead.”
• Whilst European Central Bank President Jean-Claude Trichet was “uneasy when I see that because we have some green shoots here and there, we are already saying, ‘Well after all we are close back to normal“.

The underlying issue is shown in the chart from thechartstore.com, which shows “official” recessions in grey. And these are much shorter than the “real” recessions faced by industries such as chemicals. This is because the end of the destocking process produces a statistical recovery, as GDP rises in response to a renewal of underlying demand.

Thus the “official” 1980’s recession ended in 1982, and that of the 1990’s lasted just 6 months. Yet in reality, the chemical industry had to wait 3-4 years before a real recovery took place. And even the minor downturn of the early 2000’s was far shorter officially, than in reality.