Asia, not US, will lead global recovery

Anyone who had expected the US economy to bottom out in the second quarter seems to have been proved wrong. The preliminary numbers on Saturday suggest it continued to contract, albeit at a much slower rate, just 1 per cent.

That is annualised so the actual contraction was 0.25 per cent. That was greeted with mild relief. If you couple this news with signs that the US housing market is picking up at last you could say that the economy is probably bottoming out and that it ought to be growing again by the end of this year, maybe sooner. The big fiscal stimulus package is starting to kick in and you would expect consumers to start to take a little comfort if the housing market continues its modest recovery.

The recovery from this global downturn will not be led by US consumers. Their debts are being paid off and they are saving again but this has been such a scarring experience that they won't snap out of it fast. That means that US growth will be muted for a couple of years at least.

On a long view, that is fine. But from the point of view of the rest of the world, it means a slow recovery, led by Asia. This will be the first global recovery ever to be driven by Asia.

That probably means a slower recovery for the UK and Europe and a faster one not just for most Asian economies but for raw-material producers too. As Asian demand continues to climb that will push up demand for energy and commodities.

In previous cycles, oil consumers benefited from a plunge in energy prices; this time, that looks less likely.

Digging out of this one will be a slow business for the developed world, even if the emerging economies are racing ahead already.

- INDEPENDENT