Many politicians are trying to talk the economy up saying that the worst of the recession is over and recovery will start by the end of 2009. This is certainly the stance of the Labour government with Alistair Darling estimating in his budget speech a lower decline in the economy than a raft of think tanks and analysts believe will happen with a view that the UK economy will start to grow by the end of 2009.

Is this wishful thinking, trying to persuade people out of the gloom and talk up Labour’s faint hopes of being re-elected in a year’s time – if indeed the next general election does not come much sooner because of the constitutional crisis caused by the expenses scandal?

The economic measures for the first three months of 2009 from economies around the world showed the global economy was in a steep decline – a rate of decline not seen since the 1930s depression.

The UK economy – defined as gross domestic product (GDP) – declined by a much worse than expected 1.9% in the first quarter of 2009 after a 1.6% fall in the fourth quarter of 2008. In Europe the situation was even worse with the 16 member Euro region falling by 2.5% in quarter one 2009 after a 1.6% fall in quarter four 2008. Germany’s economy shrinking 3.8% in quarter one 2009 but not as bad as eastern European economies such as Lithuania and Estonia which have shrunk by over 10% in quarter one 2009.  3.8% was also the rate of fall in Japanese economy in quarter one 2009. Hong Kong’s economy is set to fall by 6.5% in 2009. The European commission estimate that unemployment will reach 11.5% across the Euro zone by the end of 2009.

The US economy shrank by just over 1.5% in both quarter one 2009 and quarter four 2008. China is not technically in recession but its economic growth is slowing. In 2008 GDP growth was 9% but by the first quarter of 2009 this had slowed to 6%. But the slow down in the global economy on which China is heavily dependent upon for its exports has led to over 30 million Chinese losing their jobs. The Chinese Academy of Social Sciences estimates that unemployment in China is running at nearly 10%.

Clearly the first quarter 2009 economic figures show that the world economy is in a deep recession with the potential of it developing into a global depression – a 10% shrinkage of an economy over several successive quarters of decline. What then is the evidence for a green shoots of recovery? Until the second quarter GDP figures are published sometime in mid July we have to look to the monthly economic indicators for April and what has been happening in the financial system whose crisis of credit led to the global recession we are all now experiencing.

US Data for April

In the United States the main indicator of the economy where data is available for April 2009 is unemployment where in it grew to 8.9% with 553,000 people becoming unemployed to make a total of 13.7 million. The situation was worse in the private sector where 611,000 people lost their jobs in April 2009. US retail sales fell for unexpected second month in a row in April. The housing market continued to decline in April with an increase in repocessions for a second month to 342,038. In the financial sector ten of the largest 19 US banks will need another 75 billion US dollars to stop them going bankrupt.

UK Data

Unemployment rose to 2.2 million at the end of March 2009. This rise has continued in April 2009 where the number of people claiming benefits climbed from 1.42 million to 1.5 million. The housing bubble which is at the centre of the credit boom continued to decline with house prices falling between 0.4% and 1.7% in April depending on which source is used. Behind this was a decline in mortgage lending in April 2009 to £10.4 billion compared to £11.4 billion in March 2009 and an average of over £30 billion per month in 2007.

The UK economy was propped up by the housing market. In 2007 the average new monthly credit secured on property was £9 billion and on credit cards was £1 billion. By 2008 this had declined per to an average per month of £3.5 billion and £0.9 billion respectively. The 2009 monthly average was £1.1 billion and £0.1 billion with latest month’s figures being £0.8billion and £0.1 billion.

Clearly the government’s quantitative easing policy is not working. The money that the government is giving the banks in exchange for government and other bonds is being held by the banks to protect them against further losses on the housing market, personal and commercial loans and derivatives. Quantitative easing is in effect another government bail out for the banks one for which we will have to pay for.

The decline in the economy will continue as long as the banks face further losses and the housing market declines. This looks likely to happen for some time with the high levels of unemployment contributing to both.

Although no longer headline news the problems of the banks continue. The government put a further £50 billion in to the banks with another tranche of the quantitative easing scheme two weeks ago. They refuse to release the results of the stress tests – these would show the likely scale of further losses- on Royal Bank of Scotland and Lloyds TSB/HBOS for “market stability”. At the same time Barclays is trying to raise $15 billion in the sale of its core fund management business with investors unwilling to put up further money. And HSBC is seeking to raise $20 billion from its investors to prop up itself up against further losses from the US housing market.

Of course the proof is in the figures and what will not see these till July for the second quarter for 2009. But all the indications are that they will be as bad as the first quarter for 2009. The likely scenario is several more quarters of decline in GDP with a new plateau being reached some time in late 2010. But it will be a plateau of stagnation with no credit available to increase consumer demand and high permanent levels of unemployment particularly amongst the young, public sector cuts and tax rises to pay for the government bailouts.

No wonder nine out of ten workers – as measured by a recent British Retail Consortium survey – are worried about their job prospects. Welcome to the new world of neo-liberalism!