As we have just entered the second half of the year, there has been muted optimism from some analysts about growing signs of a recovery and the emergence of green shoots.  It hasn’t replaced the gloomy sentiment which has gripped the world economy ever since the subprime meltdown unfolded in the United States, but it is interesting to note.

Another aspect of note which is being fiercely debated at the moment is what shape a recovery will take when it eventually happens.  Some say a V, others maintain a U or a W.  Recently I heard one analyst say he believed it may take the form of an inverted square root sign.  So it’s all a bit of an alphabet soup really, stir it around and any shape may rise to the surface.

Shane Oliver from AMP Capital Investors, doesn’t rule out a V shape, but he thinks something like a U shaped recovery is far more likely.  He says what we have seen is a steady and steep drop which he predicts will be followed by a period of flat or very little growth.  In the short term, things will appear worse, particularly in Australia, as GDP is likely to fall in the June and September quarters.

But wait there is a bright side according to Dr Oliver… and that is… even though there are indicators of short term weakness, we will see signs of growth later this year and into 2010, which of course is upside of the U shaped recovery.

And Shane Oliver isn’t alone in his predictions.  Richard Martin from IMA Asia comes from the same school of thought, but is a little more robust in his views.  He believes we will see gradual growth in momentum as stock rebuilding leads to investment recovery and eventually a lift in employment, which means we will see more of an uneven V shaped recovery.

And even though most of the world is in recession, the IMF did upwardly revise its global growth forecast to 2.5% from a previously predicted 1.9%. Another positive is that a fall in oil prices has led to a reduction at the petrol pump, which of course always makes consumers feel better about spending.

Despite all this optimism, there are definitely others with opposing views…

Independent investment analyst Roger Montgomery says, historically the market is not always a great indicator and on this occasion he believes that the markets has got as little ahead of itself.  He maintains, we’re a long time off from justifying the recent rallies we’ve seen in share markets and he expects things will get worse before they turn up.

And as for those green shoots, Roger Montgomery puts them down to wishful thinking by investment companies which need to generate business and that’s why we are seeing this growing message that things are good, so hey jump on board.