Bearish in Britain, bullish in the US – what’s the real outlook for global growth? Kohler

The Australian profit season tends to support the growing impression that, so far at least, the impact of the credit crunch on the real economy has been surprisingly limited.

The median net profit increase for the 2008 financial year was 10%. Analyst expectations were broadly met – half were in line while a quarter disappointed and a quarter surprised, although that probably doesn’t mean much these days because companies keep the market well up to date.

According to Citigroup’s Graham Harman, earnings guidance for the current year, in aggregate, was tilted to the negative, but not hugely.

And analyst earnings forecast revisions on the back of the results were pretty moderate: 41% downgraded, 17% upgraded and 42% kept forecasts where they were. The median revision was downward by a modest 1% to 2%.

Another reason for the Reserve Bank to leave interest rates on hold today? Yes, but the cut seems to be locked in.

It is fair to say, I think, that policymakers around the world no longer have a clue how the credit crisis and inflation will play out, so they are moving towards a neutral monetary stance until the smoke clears. For some that means higher rates; for Australia that means lower rates.

Which brings us to Jackson Hole and Alistair Darling.

Darling is the unfortunate British Chancellor of the Exchequer who took a journalist from the Guardian, called Decca Aitkenhead, with him on a short holiday to his country retreat in the Scottish highlands a month ago – to show his warm personal side – and sat down with her and his wife Catherine in front of a peat fire to hold forth.

The interview found its way into the Guardian’s magazine on Saturday, and half way through it, just before explaining that he loves Leonard Cohen, were the immortal words: “The economic times we are facing are arguably the worst they’ve been in 60 years,” he said bluntly. “And I think it’s going to be more profound and long-lasting than people thought.”

It was reminiscent of that occasion in 1986 when the then treasurer, Paul Keating, barking into the phone in his mum’s kitchen to broadcaster John Laws, warned that Australia could become a banana republic.

Except that Alistair Darling doesn’t seem to have meant it, or at least, unlike Paul Keating, is unable to pretend that he meant it. The pound promptly crashed and calls are now growing for his head to be removed.

The British Government’s spinners hit the phones and Financial Times quickly ran a piece saying that he hadn’t meant that Britain was facing a depression. He was merely underlining the severity of global financial conditions.

Others have wondered why he chose 1948 as his reference point. Things were going pretty well in that year. Why not 75 years (that is, since the Great Depression)? Or 35 years (since the recession of the 1970s)? But that assumes he was thinking at all.

Perhaps in time he will be able to say it was a deliberate “banana republic” type warning to the British people because the UK economy is clearly in a lot of trouble and is facing a severe recession, perhaps even more than the US. That’s because, up to the weekend at least, it hasn’t had the advantage of a big currency devaluation promoting an export boom.

Meanwhile, as the Guardian magazine was being printed with Alistair Darling’s face set against a bleak Scottish beach, at another country retreat – the Jackson Hole mountain resort in Wyoming – the world’s most powerful economic policymakers were gathered.

It was the Federal Reserve’s annual monetary policy symposium and was devoted to an examination of the credit crisis, 12 months on.

In general the tone of the conference this year was, by all accounts, one of gloomy acceptance that while the wild heat of the credit crisis that characterised last year’s Jackson Hole meeting had gone, the crisis itself is far from over.

It was agreed that the crisis had stemmed from excessive leverage associated with mispriced risk – in other words, a classic bubble and bust. The difference this time is that the leverage and mispricing were deeper and more pervasive than usual and that the crisis will therefore last longer than usual.

But it was also agreed that the economic impact has been surprisingly mild so far. Some central banks are even still inclined to raise interest rates; others, like the European Central Bank, are firmly on hold.

Reading reports of the conference, there was even a sense that central bankers gathered at Jackson Hole were rather happy about what was happening. Bernanke said he expected that the economic slack would slowly bring inflation under control again (although not all agreed with him and were looking to keep monetary policy tight).

Actually, there was surprisingly little talk about inflation; the conference was dominated by discussion about the appropriate regulatory response to bring more stability to the financial system.

Meanwhile, as Tony Boyd reported in Business Spectator yesterday, the Bank of International Settlements – the central bankers’ central bank – is saying that frozen credit markets are gradually thawing. The economic impact of the crisis is not too bad so far, and inflation may come under control naturally as the global economy slows.

From here on it is all about whether there are further financial accidents. In Australia, can Centro and Babcock & Brown survive? In the US, can Fannie Mae and Freddie Mac make it? Will there be any more hedge fund attacks on investment banks, as there was on Bear Stearns in March?

But with central bankers being jolly on a mountaintop in Wyoming, and politicians being gloomy on another one in Scotland, it’s hard to know whether to laugh or cry.

This article first appeared on Business Spectator