With Q1 2009 GDP data emerging, many people are asking, ‘is this the bottom of the current recession?’

My point of view is that if Q1 2009 is not the bottom, then H1 2009 (i.e. the first half of 2009) probably is.

In this regard, there have been some encouraging signs in Asia. The pace of year-on-year export declines has moderated of late, albeit after some very steep falls. Indeed, they are still down very sharply in year-on-year terms.

However, there seems to be a new found optimism towards China, with many believing that Q1 2009 (when growth slowed to 6.1% y-o-y) represented the nadir of the current economic cycle. Consequently, several investment banks have recently revised up their 2009 China growth forecasts to 7.0-8.0% from 5.0-6.0% previously (Business Monitor International’s own forecast stands at 5.6%).

Also noteworthy was that South Korea narrowly avoided technical recession, with its economy growing by 0.1% quarter-on-quarter in Q1 2009. Given South Korea’s reliance on external demand, this increase is at least encouraging. However, it also needs to be borne in mind that South Korea is benefitting from a much weaker currency than its competitors. As such, it has an extra advantage.

Key Risks
Overall, there are several key risks to the nadir-in-H1 2009 scenario. These are:

• A double-dip US recession, brought about by earlier than desirable monetary tightening as a result of inflationary pressures caused by massive fiscal stimulus and ultra-low interest rates.

• A double-dip slowdown in China, caused by similar factors to the above.

• Disruption to economic activity caused by the outbreak of Mexican swine flu. At this stage it is impossible to assess the severity of the outbreak, but with investors already jittery, fears of the virus could cause more economic damage than the virus itself. It could be a one-week story, or it could be like SARS.

I should add that even if H1 2009 represents the nadir of the global recession, the recovery is likely to be flat, rather than quick. As such, even in recovery mode, economies are likely to remain weak in relation to their performances in recent years.