World economy recovering - slowly

Figures published in January by the Office for National Statistics showed that, after six consecutive quarters of negative growth, the longest period on record, the UK economy has finally left recession. The 0.1% quarter-on-quarter improvement means a total contraction of 6%.

The news comes six months after the German and French economies left recession and leaves a question of what the UK's prospects are for 2010.

The Centre for Economics and Business Research has predicted a two-speed recovery, with all regions expected to show growth, though with those relying most heavily on public expenditure slowed by an expected fiscal retrenchment. Douglas McWilliams, Cebr's chief executive officer, said: "The model of financing public sector jobs in the North from taxes in the South has irrevocably broken down. This means that many regions face a painful adjustment while the private sector in these regions re-establishes itself."

The mixed news was also evident at Coface's 14th Country Risk Conference in Paris. On the positive side, the trade credit insurer announced 20 upgrades in country ratings. For industrialised countries, it ranked Sweden as A1 - its top rating - with Iceland the lowest at A4. The UK, however, remained unchanged at A2 with a not-there-yet notice.

Yves Zlotowski, chief economist at Coface, accepted that there is light at the end of the tunnel but added: "The UK process is threatened by the deleveraging of households. The crisis revealed the structural problems and weight of the financial industry."

Mixed news

The most frequently cited reason for the global recession has been the problem of sub-prime mortgage lending in the US. Dean Baker, co-director at the Center for Economic and Policy Research in Washington, cited the US housing market losing $6tn in wealth since 2006: worryingly, he does not believe that it has finished falling. He predicted only weak growth in the US for the next several years: "I expect a continued decline in house prices. A flood of foreclosures - two million each year - will bring substantial downward pressure."

One country that economists have been looking to as a possible stimulus for world growth is China. Stephen Green, head of research at Standard Chartered Bank's China global research division, argued that the reported 4tn yuan [$570billion] fiscal project was actually worth 14tn once the money coming from the banking system, not just the government, is taken into account. Green forecast a 10% growth in GDP in 2010 for the emerging superpower and predicted "a very strong year of investment-led growth; we haven't reached the peak of the stimulus yet."

With the mixed news, Jér√¥me Cazes, general manager at Coface, took the opportunity to point out that the gap between recessions are shrinking and added: "There is a big risk that the next crisis will be worse. We should tax investment banks according to their size."

His announcement foreshadowed a declaration by US president Obama less than a week later, who said in a speech that focused on ending the too-big-to-fail philosophy of banking: "Banks will no longer be allowed to own, invest or sponsor hedge funds, private equity funds, or proprietary trading operations for their own profit, unrelated to serving their customers."

For brokers, one arena in which the varying levels of growth around the globe may be seen almost immediately is in trade credit insurance.

Trade credit

Trade credit insurers have been accused of cutting back their offerings on a region-by-region and sector-by-sector basis without due consideration for individual company circumstances; so will the upturn in the UK and abroad bring stability back to the market? Phil Simmons, commercial director at Aon Trade Credit, believes that there is room for cautious optimism: "The pendulum is swinging back to a more balanced view and they are now reviewing companies based on their own individual financial performances. They are talking about writing more risks and we are starting to see that, though it is very early days."