Underlying economic data vs green shoots: the uncertain future

Over the past few weeks, France, Germany and Japan reported GDP growth for the second quarter, which appears to indicate that they are now emerging out of recession.

Unsurprisingly, media attention has been focused on whether the ‘green shoots’ of the elusive economic recovery are real or imaginary. From our field work, we would offer the following observations. In most sectors, the economy appears to have stopped getting worse, but many businesses remain reluctant to take any risk yet, and as a result, inventories of all sorts of goods are still very low. Pricing, however, is beginning to firm in some important industrial goods, notably steel, and, when business psychology reverses, the turn in activity, pricing, and incremental margins for the average...