August 18th, 2010 by Nigel Tree
Gross domestic product (GDP) in the OECD area rose by 0.7% in the second quarter of 2010, the same rate as in the previous quarter. Real GDP grew by 1% in both the euro area and the European Union driven by record growth of 2.2% in Germany; its highest rate since reunification.
GDP growth was 1.1% in the United Kingdom, up from 0.3% in the previous quarter; 0.6% in France, up from 0.2%; and 0.4% in Italy, unchanged from the previous quarter.
 * second quarter not available Source: OECD
By contrast, GDP growth in Japan and the United States slowed to 0.1% and 0.6% respectively, compared with 1.1% and 0.9% in the previous quarter.
Relative to a year earlier, GDP in the OECD area expanded by 2.8%, up from 2.4% in the previous quarter. Germany at 3.7% had the highest rate and Italy (1.1%) the lowest.
Tags: economic growth, GDP, Gross domestic product, OECD
Posted in GDP, OECD, economic growth | No Comments »
August 11th, 2010 by Nigel Tree
It will be several years before the economy gets “back to anything we can call remotely normal”, said the governor of the Bank of England, Mervyn King in the Bank’s August Inflation Report.
Personally I would hate to be seen as normal, but there is something quite reassuring about having that name applied to the economy. However, we are not going to see ‘normal’ again for years in the UK.
The Bank downgraded their forecast for economic growth next year from 3.5% which was in their May report, to 3% in the current report. Mr King said: “The UK recovery is likely to continue, but the overall outlook is weaker than that presented in the May Report, reflecting the softening in confidence, the persistence of tight credit conditions and the faster fiscal consolidation.”
However, there is a big gap between the forecasts made by the Office for Budget Responsibility (OBR) and the Bank. The OBR has forecast growth of 2.3% for 2011 and 2.8% in 2012. In fact the general agreement in the City is more with the OBR forecast.
What does the Bank see as the downsides to growth? It is felt that the lack of bank lending will limit growth and it is expected that it will take many years for bank balance sheets and fiscal positions to return to anything like normal.
On the plus side was the fall in the value of the pound and the continuing effect of the economic stimulus.
As far as inflation is concerned, the Bank expects CPI, currently at 3.2%, to remain over its 2% target until the end of 2011. This is because the effect of the increase in VAT from 17.5% to 20% from next January will drop out of the price comparisons twelve months later.
Mr King thought that continued inflation above target would not raise inflationary expectations and that there would not be a response of higher wages causing an inflationary spiral. He backed this up by pointing to the slack in the labour market which has an extra million people out of work compared to pre-crisis figures, which is causing downward pressure on pay.
In the meantime we will have to tighten our belts. Not only metaphorically, but literally too for far too many people.
Tags: Bank of England, economic growth, Inflation, sterling
Posted in Bank of England, Inflation, economic growth | No Comments »
August 9th, 2010 by Nigel Tree
I have just read a very interesting article with the title shown above, by Professor David Hulme, Professor of Development Studies, University of Manchester published in The World Today by Chatham House.
In the article he looks at the eight millennium development goals and how close we are to achieving them.
He writes: “When world leaders meet in New York in September they will laud the progress that has been made on the Millenium Development Goals, note somberly that much more needs to be done and then promise to do more before 2015 to get them ‘back on track’.
Meanwhile developed countries are slashing government spending and there are still 1.4 billion people living below the $1.25-a-day global poverty line.
You can access the article here.
Tags: Millenium development goals, poverty
Posted in Development | No Comments »
August 5th, 2010 by Nigel Tree
The Congressional Budget Office (CBO) in the US has just revised a forecast it made for the effect of the government deficit and debt on the crowding out of investment.
They were taken to task for figures which seemed to overstate the relationship, which had given ammunition to some commentators who are in favour of severe cutbacks in government expenditure.
Below is the statement from Dean Baker, co-director of the Center for Economic Policy and Research in Washington, which had earlier published a policy paper on what they considered to be a major error. It is worth reading the policy paper and there is a link in the text below.
“The Congressional Budget Office (CBO) is widely regarded as an impartial source of sound economic and policy analysis. Both parties have come to look to the economists and analysts at the CBO for projections and forecasts devoid of a partisan agenda. Therefore, it is reassuring that when errors were found in the latest Long-Term Budget Outlook released on June, 30, 2010, the CBO promptly issued a revised version correcting these mistakes.
“The issue in question concerns the impact of deficits and debt on private investment. As discussed in a recent issue brief from the Center for Economic and Policy Research (CEPR), the CBO’s report suggested that projected deficits would greatly reduce private investment and lower GDP. Advocates of prompt deficit reduction had already seized on these erroneous projections to advance their agenda.
The revision to the Long-Term Budget Outlook shows that the effects of crowding out are significantly smaller than in the projections released in June. As well, the revision includes the effects of crowding out on GNP, also discussed in the CEPR issue brief.
“By acting quickly and revising the June projections, CBO has demonstrated that the agency is committed to careful and thorough analysis.”
Tags: crowding out, government spending, Investment, US economy
Posted in Investment, US economy, crowding out, government spending | No Comments »
August 3rd, 2010 by Nigel Tree
Net exports of the UK financial sector fell by 17% in 2009 to £41.8bn. This was the second highest figure on record but was, not surprisingly, down from £50.6bn in 2008 as a result of the ‘credit crunch’. These figures were published yesterday by TheCityUK, an independent body which promotes the UK financial services industry.
Although securities dealers contributed £1.4bn, fund managers £2.9bn and professional services £6.4bn, banks were by far the biggest contributor. The banking sector recorded net exports of £31.0bn in 2009, down from £25.3bn in 2008.
These figures are really important because the £41.8bn in net export earnings from the UK financial sector is helping to offset the £82bn trade deficit in goods. And, the banks’ contribution is nearly three-quarters of the financial sector surplus account.
So, love them or hate them, the banks are important to the UK economy. This means that the government is having to tread warily in its dealings with banks and has not yet introduced any financial reforms. Basically, they have asked the banks to act in a grown-up and honourable fashion, when the investment arms seem to be run by risk-taking, overgrown kids, intent on creating the biggest bonus they can. It’s like the children running the school.
Just this week HSBC has announced that it is putting $2.52bn (£1.6bn) into a piggy bank for the first six months of its financial year, to hand on to its investment banking arm. This is up $300m on last year even though the bank’s operating income has dropped by $10.3bn. HSBC is not alone in its desire to keep bonuses buoyant.
Just two years ago UBS put a stop on bonuses which almost led to the collapse of its investment bank, as bankers went elsewhere to where the grass was greener. So, unilateral action taken by a single bank has been seen not to work. This then begs the question, supposing the government, as has been threatened, caps all UK bonuses. Does this mean that we will have an emigration flood to Frankfurt, New York and Tokyo as bankers seek more lucrative employment in a less regulated market.
This is a dangerous game of ‘call my bluff’ which the government cannot afford to lose, given the earning power of the financial sector. The banks are still in the mindset of taking mega risks, for mega profits to supply themselves with mega bonuses. The knowledge that the government will act as lender of last resort, as in the recent banking crisis, and bail them out of their own indiscretions, is not going to help.
The government has got to draw a fine line between giving the ‘golden goose’ a good slapping and killing it altogether.
Tags: Balance of Trade, Banking, bonuses, finacial services
Posted in Balance of Trade, Banking, Service Sector | No Comments »
August 2nd, 2010 by Nigel Tree
A significant increase in demand for rail travel during the first half of this year has seen a return to growth in passenger numbers on the railways not seen since before the recession.
October 2009 marked a turning point in demand, according to analysis published today by the Association of Train Operating Companies (ATOC). During the first half of 2010, there were 681 million passenger journeys, compared with 648 million during the first half of 2009. This meant that there was an overall rise of 5.1%.
Not only that, the rate of increase is rising as well. In the first quarter of 2010 growth was 4.4%, and rose to 6.1% in the second quarter.
 Demand for rail travel is expected to double in the next 20 years. Also, demand grew in all sectors. Long distance travel growth was up 7% in Q1 and 7.7% in Q2. Regional growth was up 1.8% and 6.2% in the respective quarters, and London and the south-east saw growth rise by 5.1% and 5.9%.
Over a billion journeys are made on the railways each year, which is a rise of 60% since privatisation in the mid 1990s. Overall demand is now expected to double over the next 20 years.
Tags: railways, Transport, Travel and Tourism
Posted in Transport, Travel and Tourism | No Comments »
July 29th, 2010 by Nigel Tree
The government has just started a consultation process with the view of scrapping the fixed retirement age from October 2011. This would mean that employers would no longer be able to ‘force’ workers to retire at age 65, as they can, and usually do, at the moment.
The bad news is that you have to have a job in the first place. Unlike the 2.47 million who are currently unemployed in the UK. We should also not forget the 1.08 million who have to take part-time work because they cannot find any full-time employment.
Charities and organisations that have been fighting against “age discrimination” are obviously delighted at the news, as are many older workers who don’t want to end up on the ‘scrap heap’ at age 65.
Although the government will be highlighting this “anti-discrimination” argument, it will have the underlying reason that this move makes economic sense. With a steadily ageing population the demands on the public finances are immense, for support, pensions and health care. With more people being able to work longer, and finance themselves more easily, there will be fewer costs to the exchequer.
Not only that, there will also be more people paying taxes at the same time as they are receiving their state pension, which will boost the economy as well as government finances. The ‘grey pound’ is already a growing part of consumer expenditure and is now set to become even more so.
On the down side, it could be argued that there will be fewer opportunities for younger people to obtain jobs if fewer people are retiring. Some employers feel that the change may add to their costs and that it will make workforce planning more difficult, not knowing the date at which older people will terminate their employment. Some also put the argument that older workers are less productive although there is no evidence to back this assertion. In fact some companies have been deliberately targeting older workers who they feel offer a better interface with customers, than those who are just out of school.
Tags: Age discrimination, ageing population, Employment, productivity, Public Finances, retirement
Posted in Employment, Population, Public Finances, labour markets | No Comments »
July 28th, 2010 by Nigel Tree
The National Institute of Economic and Social Research (NIESR) has just launched its quarterly review of the UK economy. It actually believes that Britain will see a 1.3% increase in GDP this year, which is above the forecast of 1.2% made by the Office for Budget Responsibility.
However, that is where the good news ends. NIESR forecasts that GDP will only grow by 1.7% in 2011-12 and 2.2% in 2012-13. This is substantially lower than forecasts made by the OBR of 2.3% and 2.8% respectively. NIESR believes that the governments severe spending cuts will lower economic growth in every year up to 2015, particularly due to cuts in consumer spending.
Although the last quarter showed surprising growth of 1.1% the NIESR said that the future could still be “bumpy”, and that there may be no growth at all in some quarters. It actually expects growth of only 0.1% in the third quarter of this year and 0.3% in the fourth.
As far as the world economy is concerned the thinktank predicts growth of 5% compared with a downturn of 0.6% last year. However, it expects the fiscal austerity plans in many nations will reduce growth the following year to 4.4%. The global recovery is expected to be led by sharp growth in Asia, especially in China, India and Taiwan.
Tags: austerity package, Consumer Expenditure, economic growth, GDP
Posted in Consumer Expenditure, economic growth, government spending | No Comments »
July 27th, 2010 by Nigel Tree
Merchandise trade volumes for the G7 countries as a whole continued to grow in the first quarter of 2010, but at a slower pace than in the fourth quarter of 2009, according to statistics just released by the OECD. Based on seasonally adjusted monthly data, merchandise trade values remain approximately 20% below pre-crisis levels in April and May.
G7 merchandise export and import volumes both grew by 3.2% in the first quarter of 2010 compared to 4.7% and 3.7%, respectively, in the fourth quarter of 2009. The highest increases were registered in Germany and Japan, where export volumes rose by 4.3% and 6.5%, and import volumes rose by 5.7% and 3.7%, respectively. Export volumes grew more slowly in Canada (0.4%), the United Kingdom (1.4%) and the United States (1.6%), where growth was also down from the fourth quarter of 2009. Growth in import volumes also slowed in all three countries.
The recent trend can be seen in the graphic below.
 Total G7 merchandise trade in US$(bn) - Seasonally adjusted data at current prices and exchange rates. Source: OECD Balance of Payments data paint a similar picture for the OECD as a whole. The value of merchandise exports and imports grew by 1.3% and 3.4%, respectively, in the first quarter of 2010, down from 8.0% and 6.7%, respectively in the fourth quarter of 2009 (not seasonally adjusted).
Balance of Payments data for trade in services show a fall in the first quarter of 2010 of 1.7% for exports and 1.0% for imports
Tags: exports, G7, imports, merchandise trade, OECD, services
Posted in International Trade, OECD | No Comments »
July 26th, 2010 by Nigel Tree
Director-General Pascal Lamy of the World Trade Organisation gave a speech in Shanghai last Friday in which he emphasized the importance of trade to the worldwide recovery.
He said: “Trade can be thought of as a stimulus package available to both developed and developing countries. It has to be part and parcel of the economic recovery effort for growth to be sustainable. As I already mentioned, our forecast for 2010 currently shows trade growing by about 10 per cent, around 11 per cent for developing economies and around 7 per cent for developed ones. With the way things are going so far in the global economy, this number may be too small. We will revisit the forecast in a couple of months.
“I heard recently an argument according to which during the recovery it would be nonsense to assume that everyone can increase exports. I am sorry. Of course, everyone can increase exports if imports also grow! Thus making the overall resources allocation more efficient which means growth for all. This is why trade expansion can be a low-cost stimulus”
The only problem with this argument is that consumer spending will be under intense pressure in countries such as the UK over the next two to three years. If consumers are reluctant to pay for imported goods then the “increase imports and exports and all will be better off” argument, is not going to work out. Too many countries will be looking for a stimulus in exports to boost recovery at a time when home conditions are not conducive to increased imports.
Tags: economic growth, exports, imports, International Trade
Posted in International Trade, economic growth | No Comments »
|
