The Hindu Business Line : Asia showing signs of economic recovery

Is the worst over for global growth concerns? It may be too early to assert, but there are incipient signals that the pace of deterioration in major economies is easing. If anything, economic activity in Asian majors, China and India, is beginning to rise, after falling for several months.

The latest OECD Composite Leading Indicators (CLIs) for April 2009 point to a reduced pace of deterioration in most of the OECD economies with stronger signals of a possible trough in Canada, France, Italy and the UK.

The signals remain tentative, but they are present in the majority of the CLI component series for these countries. Compared to last month, positive signals are also emerging in Germany, Japan and the US, the report pointed out adding major non-OECD economies still face deteriorating conditions.

Tentative signs

However, China and India are proving to be exceptions. Tentative signs of a trough have emerged in these two economies, it is pointed out. The CLI for China increased 0.9 point in April 2009 but was 8.3 points lower than a year ago. The CLI for India increased 0.4 points in April 2009 but was 7.9 points lower than in April 2008. However, the CLI for Russia and Brazil decreased.

The OECD CLI is designed to provide early signals of turning points in business cycles - fluctuations of economic activity around a long-term potential level. The approach, focusing on turning points (peaks and troughs), results in CLIs that provide qualitative rather than quantitative information on short-term economic movements.

Imports rising

Evidence of a pick-up in economic activity is already available in China and India. Imports of energy products and industrial metals have been rising.

There is also significant movement of iron ore and coal. Ocean freight rates are firming.

All these suggest improved economic activity and a slow but sure change of sentiment. Whether it is sustainable is still debatable. But there is cautious optimism that various stimulus and bailout packages are now beginning to work.

Although demand for industrial commodities still remains weak globally, there are regional bright spots, such as Asia. Demand side concerns are much less today than they were in the first quarter of the year. Crude prices over the recent weeks have risen consistently because of the easing of inventory overhang. While OECD demand remains weak, Asian demand is robust.

Base metals such as copper have not lagged behind in price performance. Further flow of positive data over the next two to three months would confirm if the world is truly on the path of recovery.