Dubai trade rebounds 22% but is this a double dip recession?

March exports from Dubai rebounded by 22 per cent to $5 billion compared with March last year, one of the lowest points of the global financial crisis, reported the Dubai Chamber of Commerce and Industry yesterday.

For the first quarter of 2010 total exports were up by 15 per cent to $13.8 billion as the recovery in Asia boosted trade in the regional transportation and logistics hub. But the wider question remains, is this just the middle of a W-shaped or double dip recession?

Oil price falls

The plunge in oil prices this week suggests that the global recovery is at best fragile. Financial markets have rallied for 14 months and now appear to be in a correction phase, aggravated to the downside by the very real threat of a sovereign debt crisis in Europe.

Yesterday three people died in riots in Greece as the heavily indebted euro zone country descended into anarchy in the streets. But the Greek debt crisis is now having a wider contagion, with fears that Portugal and Spain will be next. The euro has plummeted against the dollar and this is taking the problem across the Atlantic. A higher dollar is depressing oil prices.

Wall Street fell again yesterday and has become highly volatile, often a precursor to the end of a major upward trend. Analysts are reluctant to call the end of the long rally. But the strength of the stock market upturn has not been matched by the real economy where the recovery is barely established.

The risk is that financial market reversals will begin to depress the real economy instead of leading its recovery. Certainly if a few days of reversals was to become a more normal correction of a few months then the recovery would falter, and it is possible a serious crisis in Europe would drag the world back into recession. Asian markets also look to be overheating.

Debt mountains higher

One thing is quite clear, debt mountains have only gotten higher since the global financial crisis began and the logic of solving a crisis caused by too much leverage by more debt has never been entirely explained.

The two solutions on offer now are: austerity a la grec and inflation a la Fed money printing. Financial markets are just waking up to the fact that neither holds a very attractive future scenario for stocks, bonds or real estate.

Inflation is generally bad for corporate profits because companies cannot pass on rising costs fast enough. Austerity reduces demand and therefore revenues and profits. Try to make a bull case for buying equities out of that and it does not add up.