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Not too early to talk of green shoots of recovery

Louisa Bojesen
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The expression &ldquo;green shoots&rdquo; is one you either find comfort in or loathe at the moment. It was coined in 1991 by the former Chancellor of the Exchequer, Norman Lamont, when most of the world was going through an economic recession. Lamont thought he could spot the very first signs of a recovery, but was heavily criticised for his early optimism. Similarly, Ben Bernanke, the Federal Reserve chairman, has been criticised recently for indicating that he sees &ldquo;green shoots&rdquo;. The pessimists among us argue the only &ldquo;green shoots&rdquo; now are temporary and direct consequences of the various central banks pumping billions of dollars into the system. But Giles Keating, head of research for private banking and asset management at Credit Suisse,&nbsp; says it is not too early to be talking about &ldquo;green shoots&rdquo; as it is very clear that survey data has recovered. US ISM (manufacturing data) is at or close to positive expansion levels, and business surveys show India and China are back in positive territory. Keating says that while <br /><br />Europe is lagging, it still has moved way up from its lows. This is important, he says, as survey data is often a pointer of what follows in a few months.<br /><br />INVENTORY EFFECT<br /><br />Over the past many months companies have been aggressively scaling back costs and getting to grips with large inventory overhangs. In a potential recovery scenario, the last thing you want to do is underestimate the power of the inventory cycle and the moves associated with this. Keating underlines that while companies are getting rid of inventory, the economy tends to decline rapidly. In contrast, when companies stop getting rid of inventory, there is often a significant rebound in the economy. Keating says we are at the point of rebound.<br /><br />The UK economic recovery, as usual, is caught between the US and Europe &ndash; not quite as far ahead as the US, but&nbsp; outperforming continental Europe well.<br /><br />Keating predicts a positive performance from the FTSE for the rest of the year. A word of caution though.&nbsp; Even if the FTSE performs well in the second half, we could be in for a rough ride along the way.<br /><br />Louisa Bojesen is a presenter on Squawk Box Europe each weekday morning on CNBC.