As long as inventories are too high - no recovery

Source: The Economist

Unfortunately, so far it seems that inventories are still high in the developed economies, at least in relative terms. The ratio of inventories to monthly sales for all types of business (manufacturing, wholesale and retail) in the US was 1.41 in November 2008, the highest number since September 2001, according to data from the US Census Bureau. This suggests that there remains a substantial need to deplete stocks further. (True, the inventory ratio is inflated by falling sales, and in absolute terms inventories are falling. But inventories have not fallen as much as sales, so there is further catching up to do. This will hit import demand.)

The best indicator for inventory levels in the euro area, meanwhile, is the European Commission's monthly survey of inventory levels for manufacturing and retailing. The indicator for stocks of finished goods in the manufacturing sector declined slightly in January, but it remained very high. In the previous month's survey, the percentage of respondent companies judging their inventory levels to be excessive was the highest since August 1993. The equivalent figure for European retailers in January surged to the highest level since 1996 (moreover, the 1996 peak was mainly due to unusual volatility at the time).

In Japan, too, excess inventories remain a worry. While high inventories in the US and Europe are compounding the problems facing Japanese exporters, the same situation in Japan is undermining the country's demand for imports from the rest of the world, including from Asia. The Bank of Japan's Tankan survey of business sentiment for the fourth quarter of 2008 showed that the share of companies seeing their level of inventories as excessive was at its highest since the start of the series in the fourth quarter of 2003. This means that de-stocking is likely to continue for some time, and that the pace of de-stocking may yet increase.