Nouriel Roubini is a bearish guy at the best of times, but he is currently worried that signs of those “green shoots” of economic recovery are covering up something altogether more stubborn in the garden.

Recent data suggest that the rate of contraction in the world economy may be slowing. But hopes that “green shoots” of recovery may be springing up have been dashed by plenty of yellow weeds.

His point, in a new post on his much-followed blog, is that the consensus view that the global economy has or will soon bottom out has already been proven too optimistic.

Employment, retail sales, industrial production, and housing in the United States remain very weak; Europe’s first quarter GDP growth data is dismal; Japan’s economy is still comatose; and even China – which is recovering – has very weak exports.

Like most economic prognostications at the moment, it will take some time to see if the Stern School of Business economist is right. In the meantime, the shoots and weeds are prevalent.

Today, we had a smallerFrench trade deficit, two indexes of Japanese indicators rising , an improved Australian business mood and slowing UK house price falls.

But there was also a resumed slide in German exports, a bleak forecast for Swiss growth, and slowing UK shop spending.

As the nursery rhyme goes: Mary, Mary, how does your garden grow?

It took some time, and a lot of downward corrections to IMF GDP forecasts, before the current global economic downturn won the title of ‘worst since the Great Depression’.

Why settle for second worst though?

This one is in at least three ways just as bad if not even worse than 1929-30, economists Barry Eichengreen (University of California, Berkeley) and Kevin O’Rourke (Trinity College,
Dublin) argue. 

Look at global industrial output, world stock markets, and global trade volumes. Map the nine months after April 2008 against the period following June 1929 and the story you see is the following:

* the decline in industrial production is at least as severe  * stock markets sank faster this time * trade volumes are falling much faster now

Eichengreen and O’Rourke say the reason people tend to say that this one is second to the Great Depression is because the comparisons tend to be between the United States now and back then — not the world now and back then.

Which begs the question — if this one is every bit as bad as the Great Depression, it’s the worst since when?

The European Central Bank has to cut official interest rates by at least another percentage point to stop the real cost of borrowing for households and firms jumping in the summer as inflation plummets.

That’s the logical conclusion of comments in recent weeks made by ECB policymakers including Italy’s Mario Draghi and Germany’s Axel Weber, who are watching inflation-adjusted borrowing costs closely to gauge the impact of cuts in official interest rates on the real economy.

One key factor in the euro zone’s economic recovery will be the real cost of borrowing, the interest rate paid on credit after adjusting for inflation, or any loss of purchasing power.

Although there is a long academic debate about how to calculate this, several policymakers have done a simple equation of taking annual inflation (1.1 percent in January) away from the current benchmark interest rate (2.0 percent) to arrive at an estimate of the real cost of borrowing of just under 1 percent.

“In the euro area the real short-term rate is now below 1 per cent; if official rates had not been cut, it would have risen considerably because of the fall in inflation,” Draghi said in a speech in Milan on Feb. 21. “The Governing Council is keeping a close watch on the real cost of money.”

The catch to this argument is that euro zone inflation is expected to fall to zero or lower in the middle of the year, which will push real borrowing costs up unless the ECB slashes official rates by an equivalent amount. If it keeps its refi rate at 2.0 percent, the real rate would also be 2 percent — or double the level it is now.

Economists fully expect the ECB to cut rates to 1.0 percent by the middle of the year, given the dismal outlook for growth as well as very low inflation. But they warn that the real rates argument could backfire on the ECB, which is already under fire for not having cut interest rates as aggressively as its peers in other countries, given inflation is expected to rise again in the second half of the year.

“Does that mean they would follow through by raising rates to compensate? That’s why I think they should be very cautious in using this argument,” said Deutsche Bank economist Mark Wall.

George Alogoskoufis is a hardly a household name outside Greece and EU financial circles. But the newly sacked Greek finance minister could yet become a poster child for politicans struggling to fight off economic decline and banking industry collapse. His demise was in large part due to a public perception that he was helping out the banks but ignoring rising joblessness.

Greece, of course, is a special case at the moment, still recovering from riots over the police shooting of a teenager. But finance ministers, central bankers and other responsibles are probably not immune from Alogoskoufis Syndrome. Balancing the need to bail out the finance industry with rising economic misery among everyday people is not easy. Fat cats are not exactly in favour at the moment.

This could, indeed, come to a head later in the year. Investment cycles tend to recover before economic ones. So what happens when Wall Street, the City and the like start bringing in the money again just as unemployment lines start getting even longer?

How well is your finance minister doing as the global economy comes tumbling around your ears? Finns, at least, can hold their heads up with pride: Jyrki Katainen (pictured on ice) has topped The Financial Times’ annual rankings of European finance ministers.

Results for the G7 members of the group were mixed. Germany’s Peer Steinbruck came second, despite a poor showing on politics, and France’s Christine Lagarde was seventh. Britain and Italy languished at 14 and 16, respectively, although at least UK Chancellor of the Exchequer Alistair Darling can boast of coming first in politics. Something to do with élan, apparently.

Democratic presidential nominee Barack Obama and Republican nominee John McCain meet tonight at Hofstra University in New York, their final scheduled appearance together before election day.

The third encounter was meant to be the debate to focus the economy and domestic issues. But the economy couldn’t wait.

The $700 billion government bailout was the first topic at the almost-didn’t-happen-first-debate with PBS moderator Jim Lehrer.

Tom Brokaw of NBC News selected his first question from Allen Shaffer, who asked about on the economic downturn and retirees at the Town Hall meeting.

CBS anchor Bob Schieffer moderates tonight’s debate, hours after the Dow Jones Industrial Average and the benchmark S&P 500 suffered their worst one-day percentage drops since the 1987 stock market crash .

And Federal Reserve Board Chairman Ben Bernanke told a group of economists in New York that policymakers may need to use their regulatory authorities to predict and curtail asset bubbles in the future so that we don’t see such wild swings in the economy.

What would you ask if you were in Schieffer’s seat?

The financial system is in the grips of its most violent
upheaval since the 1930s. A staggering amount of wealth has been
destroyed this year — $11 trillion wiped out from world stock
markets in the past nine months. The damage already is spilling
into the real economy, and fears are spreading among investors
of a deep and damaging downturn.

Macroscope is a new blog where Reuters journalists from
around the world look behind the headlines, the speeches and the
economic reports to bring you a fresh look at the factors
driving the world economy, and the people making the decisions that affect
your household budget.

It will look at the policymakers who are ripping up the rule books
in a desperate search for ways to get cash pumping through the seized-up money markets,
stabilise banks, revive stock markets and prevent the credit
crisis from turning an economic downturn in the United States
and Europe into a deeply damaging global recession.

This weekend, Reuters has 20 of its most experienced
economic journalists in Washington, reporting on efforts by the
world’s richest nations to find solutions. Officials are holding
crisis sessions at the G7 and International Monetary Fund annual
meetings there. Macroscope gives an inside look at what’s going on, and what it means.

Stella Dawson

Global Treasury Editor