Sunday, October 04, 2009

Recovery in sight? Possibly.

Banking sector liquidity has been shored up, public capital has been injected into weak banks, and troubled assets have been insured against further large losses. At the same time, economic activity is being supported by unprecedented monetary policy easing and sizable discretionary fiscal stimulus.

These aggressive policy measures have helped avert a systemic breakdown in the financial sector. Simultaneously, the flexible exchange rate has acted as a shock absorber, depreciating early in the crisis and shifting demand toward domestic production. There are now tentative signs that economic activity is stabilizing and confidence returning.

The United Kingdom faces many challenges on its road to recovery. However, if the authorities continue to handle the crisis successfully, ensure a return to a sustainable fiscal path, and use the current momentum to implement wide-ranging reforms in the regulation and supervision of the financial system, the foundations would be laid for a return to steady growth.

Not a statement from the Chancellor, but from the International Monetary Fund.

There's a lot that could derail recovery yet and we are by no means out of the woods, but good to see that others recognise the effectiveness of Labour's response to the economic crisis. It is hard to explain just how serious things became in the autumn of 2008. I've been told by a reliable source that the banks were seriously considering shutting down the ATM networks to reduce the outflow of cash, such was their concern about being left drained. Drastic measures were required and difficult decisions had to be taken. The Tories suggested that the best course of action was to do nothing, but the evidence so far is that this would have been a disastrous approach and that their proposals so far could slam the brakes onto the nascent recovery if they win the next election.

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