Experts are of the opinion that the financial markets are gradually recovering. Economists say that the gradual recovery of stock markets as well as rallying stocks should not confuse investors. However, there is a wave of optimism in the markets and this can serve as an economic stimulus by itself. The liquidity crunch forced many consumers to reach the threshold of insolvency. Even though there are signs that the economy is recuperating at a snail’s pace, financial experts don’t rule out chances of a deteriorating economy due to the ongoing credit crunch and it’s after effects.

Repairing equity or the economy?

The bailout programs introduced by the government have managed to restore consumer confidence to a certain extent. And it appears that these bailout programs are aimed at rebuilding equity for tax payers rather than helping the economic survival of the country. It has also helped consumers regain confidence to some extent. Recuperating the economy is a long drawn process and is quite time consuming. There exists a correlation between market participants at all levels.

How can the economy recover?

It is a cycle and all market participants have a role to play in the economic recovery. If consumers start spending as before, businesses will be saved from closing down, creditors/lenders will get their money back, price of assets will escalate, and banks will start lending again. Once the banks start lending, investors will follow suit. Investment by business organizations will generate employment. And if consumer confidence and investor sentiment improves, so will the economy.

Financial analysts think that this is the best time to cling on to safe assets and a fairly solvent portfolio. It is best to retain US government bonds, company stocks having high flow of cash and reduced levels of debt. Europe seems to be recovering rather slowly, much slower than the US. It has not done enough to prevent financial stress and revive demand in the financial markets. As per reports furnished by OECD or Organization for Economic Co-operation and Development, the gross domestic product will shrink by 3.3% in France and Britain will witness its GDP shrink by 3.7%. In Germany, the gross domestic product is expected to shrink by 5.3%.