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Welcome to the second half of 2009, the time when optimists say the global economic recovery will start. It is July 1st, so where is this fabled recovery?

Recent US economic data is not encouraging: the 6.9 per cent savings rate and a slump in the June consumer confidence indicator. House prices may have moderated their rate of fall, but they are still falling.

China crisis

Over in China exports are down 26 per cent amid massive forced bank lending that has prevented the economy from taking a real dive. But a lot of that money has been spent on stock piling commodities, forcing up prices and hitting recovery prospects elsewhere.

Germany is facing its worst contraction in GDP since the Second World War and it is worse in Japan, still the world’s second largest economy. The UK economy shrank by the most in 50 years according to figures for the first quarter that have been revised downwards.

Only in financial markets are there any green shoots of recovery. This is where the government bank bailouts and stimulus packages have been most felt. Indeed, they have prevented a catastrophic meltdown of financial markets.

However, that is not the same as an economic recovery. And just where is the global economic recovery in the second half of 2009 that optimistic pundits have been predicting? Do we need to put it back to the fourth quarter, or early 2010, or perhaps 2011 or 2012?

For let us take a sober business view for a moment. The world economy has clearly taken a massive downturn.

‘We are almost two years into a financial and economic crisis that is far from over,’ said the chairman of HSBC Stephen Green yesterday. ‘We cannot even say that we are past the worst.’

Financial market correction

That is an eminently sensible conclusion. Financial markets look well overdue for a strong correction to reflect a far less rosy reality, and business will continue to be tough going forward.

A further shake-out of global stock markets looks inevitable because markets have priced in a recovery that shows no sign of appearing anytime soon. The risk of deflation is only too apparent with eurozone prices falling 0.1 per cent in June, and further falls in asset prices can only deepen this trend at least in the short term.