The alphabet of letters to describe economic conditions – such as the V-, L- and W-shaped recoveries – has not been exhausted, it seems. Say hello to the m-shaped cycle, a fair description of the world after the financial crisis according to Trevor Greetham of fund management house Fidelity Worldwide. Or, more prosaically, "brief policy-driven economic upswings are followed by short-lived but intense downturns".
You can see what he means. Downturns come on suddenly in a debt-laden world but policymakers can achieve rapid results when they hit their emergency monetary buttons – only to see the recovery fade quickly when support is withdrawn. A further complication is that nobody really trusts policies such as quantitative easing to achieve lasting benefits and so confidence falls as soon as the drug is withdrawn. Greetham calculates that periods of acceleration and deceleration in global economic activity have averaged about a year over the past 40 years; since 2007, however, upswings have lasted six months and downswings nine months.
In this yo-yo world, policymakers are only jolted into action when panic is intense. So far, Greetham reckons, we've seen only their second-best shots, with sentiment having to slump a lot further before the big guns are rolled out.
That analysis provides a suitable commentary for Wednesday's big event. Mario Draghi, president of the European Central Bank, marched the market to the top of the hill last week by declaring that he was "ready to do whatever it takes to preserve the euro". Now he'd better deliver. Anything less than a big programme of buying Spanish and Italian bonds is bound to disappoint. After the recent run of economic data, investors would conclude that it's too late to avoid another downstroke of the "m".
