Financial Crisis - Are We Past The Worst?
As the recession appears to have bottomed out for most advanced economies what does the future hold? A V shaped recovery? Or something more sinister?There are certainly signs of green shoots now within the economy, built on the back of the governments massive fiscal stimulus. In turn stocks and house prices have benefited from the increased optimism over recent months.
The economy cannot however sustain the massive fiscal deficit that has built up. Unfortunately the very tools at the governments disposal to reduce public debt could spell the end to a recovery still in it’s infancy.
Raising taxes and cutting spending is the obvious answer but time it wrong and the government will risk a double dip recession and deflation. The housing market would then likely see a secondary crash. Cuts to spending in the public sector will mean further unemployment which alongside increases to interest rates will depress demand and increase forced house sales, driving down house prices.
Whether or not we are forced back into recession the road ahead will be rocky!
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