Monday, July 27, 2009

Sustainable Recovery

Despite the dower warnings of the fear mongering ultra-bears we are facing undeniable evidence of recovery. As reviewed by The Green Market on March 9, China provided some early evidence of economic recovery. More recently, China announced that it is on track to see 8 percent growth in 2009 and when coupled with positive US housing and manufacturing data, we have reason to be optimistic.

Although this recession has been severe, people like David Kelly, Chief Market Strategist for JP Morgan Funds is predicting five consecutive years of better than average US GDP growth.
In a interview last month, Kelly indicates that falling housing, autos, and inventories are all signs that we have hit bottom. Although we have seen very big declines in global production, they are not as large as the decline in consumption. "That normally sets you up for some kind of economic rebound. At worst, we will see much smaller declines in output in the second quarter than in the first. In some countries, we will see some positive numbers."

As though to prove this point, last week the Bank of Canada declared that the recession was over and as mentioned above, China is outperforming even optimisitic expectations with 8 percent growth.

Although unemployment has yet to peak in the US, according to Kelly, when it does start to come down we normally see above-average economic growth. "During the past 40 years, the average growth rate of the US economy has been about 3%. But if unemployment comes down by, say, one percentage point per year, you get 4% GDP growth." Kelly says. "Hard as it is to imagine today, once this economy begins to expand, it probably will expand at a faster-than-average pace."

As reviewed by The Green Market on March 13, international cooperation is helping to drive the recovery. Beijing and Washington are working more closely together but other world leaders are also cooperating to achieve tangible results. The G20 effect is a term that refers to the stock market rally after world leaders reached a $1.1 trillion deal to tackle the global economic crisis. In April, London’s FTSE 100 index closed up 4.3%, Germany’s Dax index gained 6.1% while France’s Cac 40 rose 5.4%. In New York, the Dow Jones rose 2.8%, or 216.5 points, to 7978 points and (as of now is back over 9000). Earlier, shares in Asia closed higher. Japan’s Nikkei 225 index rose 4.4% while Hong Kong’s Hang Seng gained 7%. The so-called G20 effect is the result of unparalleled cooperation between world leaders

According to Tony Machacek, an oil broker at Bache Commodities in London, the G20 effect helped push oil prices up 10 percent to over $50 a barrel. Renewable energy investment is more attractive now that oil has risen to just below $70 a barrel ($68.60).

Earlier this month Russell Gold wrote an article in which he indicated that renewable energy projects are again finding funding in Europe. Although renewable energy financing remains frozen in the US, Gold believes that, "there is reason to believe the US situation is better than the numbers indicate."

Ethan Zindler, head of North American research at New Energy Finance, says he expects deals are simply waiting for the US Treasury Department to finally issue rules on its grant program and for the Energy Department to detail its loan guarantee program. “The market is on hold until these rules come out,” he says.

This means we can expect a great deal of renewable energy activity in the third quarter. "Overall, money is flowing back into renewables. Globally, investment in clean energy hit $24.3 billion, down 33% from a year earlier, but up 83% from the frozen-solid first quarter," Zindler said.

As Alan Durning said ten years ago, “For every declining industry...there is an emerging one to take up the slack...A sustainable economy could be full of opportunity, and not only in these overtly green sectors.” Despite the premature condemnations of Green jobs, Durning's idea is now part of the official conversation in state capitals all around the world.

Sustainability is an important part of the solution to the economic and environmental problems we face. There have always be 'ultra-bears' who cannot conceive of anything but doom, but thankfully there are others who see Green solutions to our seemingly intractable difficulties.

Even to the most pessimistic commentator it is increasingly obvious that the world's economies have changed and are changing further still. Driven by greater international cooperation, sustainability is at the core of this shift in economic direction and it is also an impetus for recovery. The economy is showing clear signs of rebounding and the spotlight is fading on the dancing bears.


Next: Market Review (June & July) / Investing for a Sustainable Recovery / Solar Stock Review

Related Articles:
Businesses Must Cooperate for Climate Change Solutions
China's Green Stimulus, US/China Cooperation and Recovery
China-US Cooperation: The Way to Recovery
Recession, Recovery and Renewables
Helping Small Business Accept US Cap-and-Trade
United Nations Climate Change Conference
The American Recovery and Reinvestment Act
The Obama Effect (Obama Stock)
Green Stimulus: Global Green New Deal
Green Stimulus and Free Markets
A New Energy Economy
US Government Spending and Energy Efficiency Stock
The Heartbeat of America in Cardiac Arrest
G20 Lays the Foundation for a Better World
G20 Protestors Dilute Green Message
G8's More Aggressive GHG Targets
IMF Reforms


MLS said...

A very interesting and in these times maybe kind of unusual, although a well argued opinion. But don't you think that the mentioned declines in consumption might flow exactly from declines in production? These two are so intensively correlated that I would not separate them at all. Regards, Julie.

Richard Matthews said...

Thanks for the comment Julie. As I see it, declines in consumption may be influenced by declines in production to the extent these production declines drive up pricing. Conversely, increased inventories relative to demand can put a downward pressure on prices and this can inflate demand.