Are there "Greens Shoots" of economic recovery?

In recent months it has been hard to escape the media talking about possible "green shoots" of economic recovery.

Ever since the head of the America Federal Reserve Ben Benanke coined the phrase in November last year, every economist has been looking for signs to be optimistic about the financial crisis and subsequently the recession.

Are people being too optimistic about recovery or is the economy going to enter another period of growth soon that expected?

As investors weigh up each piece of economic data, in recent months the optimistic view started to gain some serious ground. The global equity markets have rallied over the past 3 months, with the FTSE 100 gaining roughly 30% or 1000 points on the belief that recovery is insight.

One of the major factors in the recent rally is the general improvement in consumer confidence and retail sales, not only in the UK, but more importantly America. A key indicator is the "Nationwide Consumer Confidence Index", which is designed to paint a broad picture of consumer sentiment in the UK. This measure has improved significantly since the beginning of the year, with 28% of the people in the survey now believing that the economy will be better in 6 months. Moreover, there has been better than expected first quarter sales results for blue chip retail companies such as Tesco, Sainsbury's and Next. For these reasons many investor are starting to move their resources back into the retail sector and actually starting to believe that economic recovery in the UK is possible before the end of the year.

Another reason for the recent rallies is the moderation of job loses in America; over recent months there has been a sharp fall in the pace of job losses in the United States. The improving conditions in the world's largest economy is suggesting to many economist that the worst of the recession is starting to pass and that recovery could be possible by the end of the year.

One more important factor is "The American Recovery and Reinvestment Act" is a stimulus package orchestrated by the Obama administration, which is designed to pump a massive 786 billion dollars into their flagging economy. This Stimulus package has reportedly helped to create or save 150,000 jobs in both the public and private sector so far. This is one of the most proactive and costly pieces of legislation ever written; the Obama administration is hoping this massive investment will be able to jumpstart the economy by creating millions of jobs.

However, there are still plenty of reasons for people to remain sceptical for a quick economic recovery for both the UK and global economies. Due to the truly global nature of trade in the modern world, what happens in one country and can significantly impact other countries in the world. Since the start of the year, world trade has dropped by roughly 12%. This has left many economists to believe that until international trade starts to recover there is little chance of a quick recovery.

Another factor playing on investor's minds is the current debt levels of individuals, businesses and government. The amount of debt that still remains in the economy is going to seriously affect the countries ability to recover. The average British consumer has taken on vast amount of debt over the last 10 years and the repayments on this debt are now affecting possible growth in the future.

This is not just isolated to the individual; this problem is affecting businesses that did not foresee this economic downturn. Companies were often borrowing large amounts of money to fund expansion, with the belief that the economy was going to continue to grow. This debt is now reducing profitability of these companies and consequently forcing them to cut costs; most notably their workforce and production.

The British government has its own debt issues caused by the banking bailouts, the cut in value added tax (VAT) and reduced income tax revenue. This has left the British treasury department with historic levels of debt. This debt will have to eventually be repaid, therefore it would be prudent to expect rises in the general level of taxation over the next few years to try and balance the public purse. This taxation will no doubt reduce the amount of disposable income that British public has in their pocket, consequently reducing the amount of consumption and delaying the economic recovery.

There still remains some very serious problems within the economy however; the positive fast acting steps taken by governments around the world has seriously reduced the risk of a sustain period of economic downturn. The case for a rapid economic recovery could be overly optimist but on the other hand, the risk of a depression very pessimistic