Everybody is talking about the green shoots of recovery and there is a perfectly reasonable case to be made for saying that the recession will end in Q3 or Q4. If the recession ended in Q3, output would be down around 6% from peak-to-trough, and the downturn would have lasted 5 quarters. Not the worst post-war recession but not far off.  However, there remains a huge amount of uncertainty and much of the current excitement is based on survey data instead of hard stats on output. Indeed, if we weren’t seeing any signs of green shoots at present it would be alarming, given the amount of economic stimulus from record low interest rates and quantitative easing.

The key question is less about when the recovery begins and more about how sustainable it will be when it arrives. At some time in 2010 fiscal (public spending cuts and/or higher taxation) and monetary policy (mopping up excess money from quantitative easing) will be tightened. Just as the private sector recovery becomes established the public sector recession will be about to begin.