Get set for a turbo charged recovery: Kohler

Nothing much happened in London over the weekend at the G20 finance ministers’ meeting, and that’s great news for company directors, their CEOs and their shareholders.

Specifically two things did not happen: they agreed not to withdraw the fiscal stimulus and they baulked at re-regulating finance.

Politicians everywhere are, not surprisingly, targeting unemployment, which is always the straggler coming out of recession.

Industrial production is rising around the world, supply managers’ surveys are back to where they were before the crisis and global GDP is probably rising, but unemployment always takes longer.

In fact, in America on Friday the unemployment rate kicked up to 9.7% from 9.4%. This is now the worst post-war episode of rising unemployment in the US, and the decline in hours worked is twice as bad as the early 1990s recession.

What’s more is it’s clear that even though production and GDP have almost certainly bottomed, employment and hours worked will continue to deteriorate into 2010.

The result in yesterday’s G20 communiqué are these words: “…we remain cautious about growth and jobs… We will continue to implement decisively our necessary financial support measures and expansionary monetary and fiscal policies, consistent with price stability and long-term fiscal sustainability, until recovery is secured.”

It was, after all, a meeting of politicians making political decisions. It means taxpayers will continue to support business activity long after that support is needed; in fact it’s probably superfluous already, in a strictly economic sense.

This is because both excess capacity and the “output gap” (the difference between actual and potential GDP) are very large indeed as a result of the credit excesses that led to the crisis, and will take years to clear.

Companies, however, have generally mothballed and written down excess capacity and cleared inventories, ready to take advantage of the recovery.

This means the economic and business recovery will be turbo-charged by politically motivated government spending.

Meanwhile, the bankers appear to have gotten away pretty well scot-free.

As much as we might bemoan the failure of politicians to re-regulate finance so the same excesses do not happen again, for businesses the credit system is quickly returning to normal – that is, to excess.

There will be no effective crack down on bankers’ bonuses, no cap on excessive salaries and no application of inconvenient red tape to prevent financial engineering. There may be an increase in capital requirements out of the current G20 process, but this is unlikely to be more than banks are doing themselves and, in any case, the credit boom showed how easy it is to get around Basel capital rules.

So all in all, a good result for business and investors over the weekend.

The next question is how long it takes for the peloton of central banks (as Morgan Stanley economists called them) to catch up with the sprinting Bank of Israel, which became the first in the world to raise interest rates two weeks ago.

Australia is expected to be the first to move after the Israelis, possibly next month, but the rest could take more than 12 months: more good news for global business and investors.

This article first appeared on Business Spectator.