Battered confidence
The wave of stock selling that followed the opening of the New York Stock Exchange yesterday, and the negative effect that this had on Europe’s key markets, lent a pessimistic tone to the remarks of commentators worldwide. Even though the US stock market then seemed to steady itself, experts discerned in investors’ reaction a «crisis of confidence,» as a report published on the ABC webpage was titled. All of a sudden, stock market experts and commentators have begun warning that the economic upturn that everyone had rushed to herald may have been nothing but a small break in a recession, which is in fact to be lengthier than originally forecast. Figures concerning the real economy, which could help in a medium-term forecast, are also unclear. Some economic data, such as the growth in Britain’s industrial production, highlight that there is no decline in demand. Other figures, however, seem to suggest otherwise. Many American states have, for more than a month now, announced that due to a drop in economic activity, tax revenues are too low. The information- and technology-driven economy is plagued by investor disillusionment. Disclosures that large US companies misstated their economic figures or are under investigation for corporate misdeeds have battered investor sentiment, which had already been undermined by the severe market fluctuations. But there are no clear signs, and one should not rush to adopt the pessimistic forecasts without question. However, in an economy which is ever-dependent on investor psychology, crumbling investor confidence – even if unfounded – is enough to keep stocks at low levels and limit demand, thus hurting the productive economy. In hopes that the growth momentum will defeat the Cassandras, economic planning has to be cautious and take the prospect of a medium-term recessionary trend into account. In Greece – a country already faced with the challenge of real convergence with the more developed Western states – this prospect should be a cause for deep concern. This is especially the case since the Athens bourse remains in the doldrums, while there are also signs of a decline in the real economy, such as the recent fall in economic activity or the drop in consumer loans. The government must consider these signs, come up with the requisite structural reforms and contain its handouts. Discounting optimistic forecasts may be tempting, but it is also economically unwise.
