Economic mood slightly brighter

The US government has reportedly already made a profit of about US$4 billion (Dh14.69bn) on its bank bailout programme.

The US government has already made a profit of about US$4 billion (Dh14.69bn) on its bank bailout programme, according to a recent report in The New York Times. According to their sums, profits amount to a 15 per cent annual return. This will be reassuring news for politicians and taxpayers, given all the controversy that dogged the Troubled Asset Relief Program.

Financial institutions, particularly investment banks, have been queuing up to pay off their debts with interest. This includes $1.4bn from Goldman Sachs, $1.3bn from Morgan Stanley and $414 million from American Express, as well as between $100m and $334m from five other banks that have repaid the government, according to the Times. A canny investment you might think, until you consider that the government has yet to be repaid by the American International Group or the car makers General Motors and Chrysler. But at least it shows that optimism is growing on Wall Street.

The mood, so dismal just 12 months ago, is also more upbeat elsewhere in the world. France and Germany both emerged from recession last month, although the barely visible growth - just 0.3 per cent growth for France and Germany - was offset by unemployment in the euro zone rising to a 10-year high. The jobless rate in the euro zone rose to 9.5 per cent in July, the highest since May 1999, from 9.4 per cent in June, according to Eurostat, the EU's statistical service.

"July's figures show that euro zone unemployment is now rising at a slower rate, but it will be some time before the labour market really starts to recover," Jennifer McKeown, an economist at Capital Economics in London, wrote in a research note. Things are even more gloomy in Britain. The UK is still in recession, while unemployment is forecast to hit 3 million next year, even if the economy returns to growth.

The business advisers BDO Stoy Hayward forecast that rising joblessness will lead to more than 5,000 retailers going bust next year. "Retailers can expect the worst of the recession to hit in 2010, when rising unemployment and structurally lower consumer credit will dampen prospects," Tony Nygate, the retail business restructuring partner at BDO, told The Guardian newspaper. According to a report by the City of London Corporation, some 35,000 financial services jobs will be cut this year. There is even a crisis in Japan, with newspapers and economic commentators howling that unemployment has hit 5 per cent of the population.

This would be a figure many European politicians would fall on their swords for - Spain's total is closer to 20 per cent and rising - but in Japan, where historically people have enjoyed a job for life, this is a catastrophe. Japan's ruling government has just been voted out of office, with a win by the Democratic Party of Japan ending a half century of almost unbroken rule by the Liberal Democratic Party, ushering in a government pledging to focus on consumers and cutting budget spending.

The yen has remained strong, which has made it particularly difficult for the country's manufacturers to export their way out of trouble. Elsewhere in Asia the future looks brighter. China has emerged from the crisis stronger and more confident on the world stage. (There is something terribly reassuring about having $2 trillion in your back pocket). However, the recent stock market rallies are in danger of stalling, as investors pause for breath.

"We remain cautious on the market," Pearlyn Wong, a Singapore-based investment analyst at Bank Julius Baer, told Bloomberg. "Much of the recovery story has been priced in. Investors are probably wondering what is going to happen once the stimulus measures end." That is the $2tn dollar question. [e-mail]