The global recession has yet to reach its nadir and stocks narrowly remain in a bear market, a Reuters poll indicated on Monday, predicting the financial crisis will wear on for another year and possibly more.
The survey of analysts across Europe and the US taken April 21-27 found a slim majority saying the bottom had yet to be hit in the worst global recession since the Second World War.
The vast bulk of them said the financial crisis that began in August 2007 and which has been pounding the world economy would last anywhere from six months to another two years -- roughly what they said when polled one year ago.
Those sombre conclusions follow more than a month of building optimism on world equity markets about a recovery later this year from the worst recession and financial crisis since the early 20th century.
Most who said the worst of the global recession had yet to be reached did not see it passed until the second half of the year and remained wary about hopes for a speedy pickup that have been building over recent weeks.
“Financial and macroeconomic stability are still some way off and we don’t yet have the foundation for a solid recovery,” said Lena Komileva, chief G7 market economist at interdealer broker Tullett Prebon.
Finance chiefs from the Group of Seven richest nations were more optimistic at their meeting in Washington on Friday, saying the global economy may be past the worst phase of a recession although they warned recovery was not yet assured.
Perhaps most striking is how similar the results are to the last financial crisis poll conducted in February, and to views expressed when Reuters first polled on the subject in July 2008, about one year into the crisis.
The proportion of analysts forecasting the crisis to last between one to two years stands at a significant 36%. The analysts polled come from a mix of dealers, buyside firms and research shops.
STILL IN A BEAR MARKET
The broad macroeconomic picture still remains at odds with the latest wave of optimism that has triggered an explosive stock market rally around the world over the past month or so.
In the latest poll, a slim majority of analysts, 32 of 60, said the rally that has taken the S&P 500 up more than 25% represented an upturn in a prolonged bear market.
“Earnings pressure remains intense and bank credit conditions continue to deteriorate,” said Scott Anderson at Wells Fargo. “We are not yet at a turning point.” Yet 21 analysts, or about a third, said the bear market had ended and seven went even further, declaring a new bull market had already begun.
Much will depend on how much the banking sector has healed and how much toxic debt remains on the books. A pending “stress test” report on US banks due during the week of May 4 and early leaks of that information has investors on tenterhooks.
MORE STIMULUS NEEDED
The poll found that even with trillions of dollars worth of planned fiscal stimulus and outright central bank purchases of assets to increase the money supply, economists said more spending will probably be required to escape the crisis.
“Balance sheet cleanup and recapitalization needs are still substantial,” noted Richard Berner, co-head of global economics at Morgan Stanley in New York.
Forty of 63 analysts in the poll said governments and central banks will need to provide more stimulus packages for any economic recovery to take hold.
The European Central Bank and the Bank of Canada are considering implementing outright asset purchase programs of the kind already being used by the US Federal Reserve, the Bank of Japan and the Bank of England.
The International Monetary Fund slashed its growth forecasts for every major country on Wednesday and urged governments to take forceful action to ensure the world’s recovery.
But on the fiscal side, many governments, including the United States and Britain, have effectively run out of leeway for more spending both practically -- given the size of budget deficits -- and politically.
“In the US it will be extremely difficult to pass more stimulus towards the end of the year if needed because of the stigma attached to government borrowing and its abuses,” noted Bank of Tokyo-Mitsubishi economist Ellen Zentner in New York.
“The largest risk in the US is that we will not have entered a period of sustainable recovery when government stimulus disappears and will be thrown back into recession.” (Reuters)