The broad rallies in stock markets in Asia and around the world in recent weeks have raised hopes among many people that the worst of the financial crisis may be behind us. The rallies have been especially impressive given the avalanche of grim economic news and the mountains of dire data. Such optimism is likely to be disappointed. It is still unclear whether we are entering a new phase in the crisis or seeing the beginning of its end. The words of Japanese Prime Minister Taro Aso yesterday, as he unveiled his government's third economic stimulus package - its biggest yet - should scare even the most optimistic bull. The head of government of the largest economy in Asia effectively admitted his country is heading into free fall and needs to be pulled back from the precipice with whatever economic resources available. Despite Japan's dire state, optimists like to point to China as a backstop to Asia's slide into economic meltdown. But the picture on the mainland is murky as well. Its exports fell for the fifth month in a row in March, to US$90.29 billion, down 17.1 per cent from a year earlier. This followed a year-on-year drop in February of 25.7 per cent, the biggest in more than a decade. Imports were down 25.1 per cent last month, to US$71.73 billion, following a 24.1 per cent drop in February. Granted, the figures released yesterday were slightly better than forecast, but they are hardly cause for celebration. In the past week, leading investment banks have rushed out a string of reports heralding an early recovery for the mainland economy. They may be ahead of themselves. Beijing has made progress in trying to rebalance a lopsided economy that has grown too dependent on capital investment and exports. Cash coupons have been handed out to lower middle-class and poor households in cities to encourage consumer purchases. The social safety net is being rebuilt, after years of neglect, to encourage people to save less and spend more. But good public health care, retirement pensions and education take years to build and maintain before people will start trusting the state to look after them; the necessary public confidence will not be generated overnight to suddenly turn tens of millions of Chinese into shoppers to save the world economy in time for this crisis. What seems likely, at least in the short term, is that external demand will continue to fall, economic growth will slow and more jobs will be lost. If there is nevertheless hope, it is that leaders of the Group of 20 nations - with the possible exception of Germany and France - will do whatever necessary to stimulate their economies. After reducing their benchmark interest rates to near zero, the US Federal Reserve, the Bank of England, the Swiss National Bank and the Bank of Japan have resorted to flooding their markets with cash. This is the strategy of quantitative easing - effectively printing money by buying domestic debts to stimulate bank lending and lower long-term interest rates. Beijing is in the unique and enviable position of sitting atop a pile of reserves, enabling it - as a last resort - to spend its way out of a hard landing. Therefore, the recent market rally is not entirely unreasonable, nor is it driven solely by false hopes. Investors are betting that all the global stimuli - whatever their eventual impact on inflation - will prove just enough to nurse the world economy back to health and stabilise the global financial system enough to enable banks to lend again. Let us hope this view is right - because the alternative is too painful to contemplate.