Brown's recovery blueprint

AUTUMN is bringing a welcome whiff of recovery in the global economy - and more than a whiff to stock markets which, on the good days, are behaving as if all our problems are over.

Wall Street paused for breath on Monday night, but if it carries on rising as it has been, the Dow Jones index will burst through 10000 before long.

This is a remarkable rise from a year ago, when the Dow fell to 7286. At that stage many reckoned it was still overvalued and needed to fall to 6000 or below to justify a recovery. Instead it has bounced by more than 30%.

In London, the Footsie, even after its recent shakeout, is 1000 points off its March low.

The message from stock markets seems to be that the global slowdown is over and we are firmly back on the growth trail. The message from the money markets, which are signalling a significant rise in interest rates, is much the same. Rates go up when economies are healthy.

But it is much too early to sound the trumpets and sing hallelujah. The latest evidence from the real world does show some recovery - but it is far too fragile and modest to justify the markets' euphoria.

In the US, it was last Friday's growth in payroll numbers that sent shares racing. But Isis Asset Management economist Steven Andrew warns that markets are celebrating too much too soon.

At home, UK car sales last month were 1.5% ahead of last year - the second best September ever. The trade expects to sell more than 2.5m cars in 2003, just short of last year's all-time peak.

But other recent evidence suggests consumers are slowing their spending, which is hardly surprising with their take home pay being squeezed. Andrew says the momentum of retail sales is slowing, making sharp interest rate rises unlikely. The futures markets are pricing in UK base rates rising from 3.5% to 4% by year-end and 4.25% in spring.

The CBI's latest financial services survey sees an encouraging turnaround in the jobs market after two years of harsh falls. But it warns that some of the new jobs will be in India unless the rise in tax and regulation is checked.

Gordon Brown is more worried about Europe, rightly since whatever Britain's economic worries, they fade compared to the Continent.

Ahead of Tuesday's EU Finance Ministers meeting in Luxembourg, Brown has pushed Germany and France into agreeing a package of structural reforms to raise their economies from their deep torpor.

Europe's big three have committed themselves in a letter to rid their social welfare systems of disincentives to work, to strengthen competition, cut back regulation that threatens jobs and to develop a culture of innovation. We have heard this before, but the commitment is necessary if euroland is not to become the new Japan, condemned to a decade of stagnation just as Japan itself is at long last stirring.

Lest we forget the old Europe, Wim Duisenberg bobbed up again in his final days at the European Central Bank, appearing to suggest it might intervene to steady the ailing dollar. The Bank's spin doctors rushed in, as so often before, with their fire extinguishers before the market took fright. But the euro soared from just over $1.15 to $1.17, adding another brick or two to the obstacles in the way of European recovery.

European Ministers should take Brown's strictures to heart and get moving on reforms that will inevitably take years. Brown should take them to heart himself and scorn the siren calls for still higher taxes on housing or anything else that is rising.

Recovery is too fragile to tax it out of existence.