How long do you think the global economic downturn will last?

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A short while ago we placed a thread on the property community forum asking for opinions as to how long people believe the global economic downturn will last. While the thread is still fairly young it has attracted a number of votes and comments which make interesting reading. The result of the vote so far is:-

One year – 23.08% (three votes)

Two years – 15.3% (two votes)

Three years – 38.46% (five votes)

Four years – no votes

Five years – no votes

More than five years – 23.08% (three votes)

Not sure – no votes

In general it looks as though most people believe the current worldwide recession will last around three years, although a significant number believe it could be over within 12 months, or last more than five years. The truth of the matter is there are very few people alive today who have even contemplated never mind seen the type of economic downturn we are experiencing. The liquidity in money markets has disappeared, businesses are going under each and every day, unemployment is rising, interest rates have hit rock bottom and there are no signs of improvement in worldwide trade.

Of the options available in the vote there are a number of factors to consider including:-

One year

While it would be difficult to completely rule out a recovery in the global economy within 12 months it is, at this stage of the economic cycle, difficult to see. However, you may be mistaken for believing the situation is set to improve dramatically if you believe the headlines associated with extra funding from the recent G20 meeting and various comments from governments and central banks around the world.

In reality, there is as much chance of the worldwide recession moving towards a depression as there is of a significant recovery within 12 months.

Two years

A recovery in the worldwide economy within two years, especially a recovery in the UK economy, is a possibility when you bear in mind political issues.  For example, the next UK general election must be announced no later than the first half of 2010, with Gordon Brown and the Labour government desperate to try and at least instigate the “green shoots of recovery” in the UK economy in time for the big vote.

On a worldwide basis, there are significant heavyweight governments around the world, such as the Chinese and Americans, who are desperate to see a recovery in the short to medium term. However, confidence is still very low in both local economies and the global economy at this moment in time. Without doubt the key to an eventual recovery is confidence and whether recent funding initiatives will breed such confidence remains to be seen.

Three years

According to the poll so far, the favoured recovery period for the global economy is within around three years. Assuming that the worldwide economy does not fall into a potentially long-term depression this is something which is very credible on the surface and is indeed attracting more support from economists around the world as the months go by.

There are hopes that a three year period would allow significant imbalances in worldwide trade to flow through the system and effectively flush out the problems we have experienced over the last 18 months. Whether this is the case remains to be seen but there is no doubt that significant funding, although having little impact at the moment, will at some stage kick in and assist a recovery.

Four years

So far there have been no votes for this particular timescale with current opinions very much polarised between three years and under and more than five years. This may be a reflection of the potential reality of a depression, if the global economy moves in this direction, or a recovery from the ongoing recession.

Five years

As we touched on above, a five-year recovery period would again appear to be in the middle of a potential recovery from a recession or a potential move towards a depression. As a consequence, so far this particular timescale has received no votes on the thread – could they be wrong about the economic downturn?

Will the economic downturn last more than five years!

Interestingly there have been a number of votes suggesting that the global economy will take in excess of five years to recover from the ongoing recession. This would appear to indicate a belief among some people in the property market that we could be headed for a depression as opposed to a recession, which historically can last for up to 10 years and beyond.

Whether we will see a change in opinions bearing in mind the $1.1 trillion G20 funding package announced just last week, together with substantial funding being made available by the European Central Bank, remains to be seen.

The worldwide economy today

There are many factors to consider when looking at the potential recovery period of the global economy although fund flows and a return of confidence appear to be top of the list of many. However, we also need to appreciate that economies around the world (making up the global economy) are at different stages of the economic cycle which will further complicate the situation.

Over the last few weeks we have seen significant investment by the US authorities in the US economy, the European Central Bank stepping into the fray and UK Prime Minister Gordon Brown trying to “rally the troops” to fight the recession. Interestingly, one of the main factors which will eventually see the worldwide economy recover is confidence, something which appears to be slowly seeping back into the system. However, we have already seen a number of “false dawns” with regards to the potential recovery of the global economy and many are concerned that the short-term euphoria associated with the recent spate of funding packages may well be short lived.

Conclusion

The vote is most definitely split with regards to when we will see a recovery from the global economic downturn although there are signs of recession and depression camps forming. Confidence is the most important factor at this stage of the economic cycle and with investors, especially in the UK, having seen billions of pounds invested with very little improvement there are concerns for the short to medium term outlook. Unless we see a significant improvement in the return on capital invested into various economies around the world there appears to be little likelihood of a short-term bounce.

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