In addition to this, consumer confidence in the U.S. has continued to rise in general; industrial production appears to be nearing a bottom and inflation continues to remain low. All of this ‘less bad’ news is beginning to point to some form of recovery in the U.S. economy, which most observers believe will start to be seen over the next six months.

China’s economy continues to improve with manufacturing expanding again in June; however, much of the improvement in this and industrial production is concentrated in the industries that received the benefit of the four trillion Yuan domestic stimulus. However, demand for Chinese goods is largely dependant on overseas markets, which continue to remain weak, particularly in Europe where unemployment continues rising (as in the U.S.) and house prices continue to fall. Countering this are signs of rising consumer and business confidence and while many people are still deferring spending they cannot do this forever and this demand will eventually benefit world economies.

Domestic economy

Consumer sentiment and spending continued to rise in the June quarter; however, with unemployment also rising this means that a recovery for the Australian economy is unlikely to emerge before late in 2009. There is evidence that business activity has stabilised and the housing market continues to show strong resilience, albeit induced by the beefed up first home owners grant, which expired in September. The good news emerging during the March quarter was that technically Australia had avoided a recession thus far, with GDP coming in at 0.1 per cent, followed by a positive 0.6% in the June quater.

Investment markets

World equity markets produced some stunning returns in the June quarter, although these were nowhere near enough to prevent double digit losses for the financial year. Again we saw emerging markets produce the highest returns at 23.5 per cent (MSCI Asia) while Japan also put in a solid performance of almost 23 per cent. These returns bounced off the lows of early March and demonstrate that being invested in the market throughout a cycle is important as it is difficult to pick when these rallies will occur.


Outlook

The months of July and August continued this strong performance with the ASX200 returning 7.3% and 6.6% in each month respectively. These numbers were also reflected around the world and many commentators are now calling the beginning of a new bull market. It appears that many believe the worst is now behind us and that while things will not recover overnight, we have now moved into a faze of gradual recovery that we should begin to see later on this calendar year. Forecasts for many companies during the U.S and Australian reporting season look promising. However, the continued spectre of rising unemployment (a lagging indicator) will more than likely keep the recovery subdued until demand makes a sustained increase and the unemployment rate peaks and begins to decline.