Archive for the ‘economic growth’ Category
Thursday, September 9th, 2010
The world economic recovery may be slowing faster than previously anticipated, according the OECD’s latest Interim Economic Assessment. Growth in the Group of Seven countries is expected to be around 1½ per cent on an annualized basis in the second half of 2010 compared with the previous estimate of around 1¾ per cent in the OECD’s May Economic Outlook.
The OECD says the loss of momentum in the recovery is temporary although uncertainty has increased. “The uncertainty is caused by a combination of both positive and negative factors,” said OECD Chief Economist Pier Carlo Padoan. “But it is unlikely that we are heading into another downturn.”
While consumer spending is set to remain weak, a combination of robust corporate profits and low business investment suggest that capital spending is unlikely to weaken further. Because inventories are now close to desired levels, a renewed depletion of stocks is also unlikely. Overall financial conditions have stabilised, the report notes, and growth remains strong in the major emerging-market economies.
Based on the most recent data, the OECD short-term forecasting models show that US GDP is expected to rise by 2.0% in the third quarter but then moderate to 1.2% in the fourth quarter of 2010. In Japan, GDP growth is forecast at 0.7% in the fourth quarter after 0.6% in the third. As can be seen in the diagram below, UK growth is expected to be 2.7% in the 3rd quarter and 1.5% in the fourth.
This is quite surprising as the National Institute of Economic and Social Research (NIESR) has just said that GDP in the three months to August slowed sharply to 0.7% , compared to 1.3% in the three months to July.
According to the NIESR report, “The pace of economic growth may have softened in the three months to August, but is still a robust rate for the UK.” But it went on to say: “Unfortunately, the rate of growth will continue to decelerate over the coming months.”
Mr Padoan, of the OECD also said that the current stance of both fiscal and monetary policy should remain on course. If the slowdown in the recovery becomes entrenched, and the risk of downturn increases, additional monetary stimulus in the form of quantitative easing and keeping interest rates close to zero for a longer period may be necessary. Countries with more fiscal space could also delay plans for fiscal consolidation.
In fact, the Monetary Policy Committee of the Bank of England decided today that interest rates will remain at their record low of 0.5% for the 18th consecutive month. There was no change to the total of quantitative easing but some commentators feel that the £200bn limit is about to be increased over the next couple of months.
Posted in Bank of England, GDP, Interest rates, Monetary Policy Committee, OECD, economic growth | No Comments »
Wednesday, August 18th, 2010
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 »
Wednesday, August 11th, 2010
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 »
Wednesday, July 28th, 2010
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 »
Monday, July 26th, 2010
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 »
Tuesday, July 6th, 2010
The latest Economic Survey from the British Chambers of Commerce suggests that there was continued growth in the second quarter of 0.6% to 0.7%.
The survey, which is based on data collected from over 5,600 businesses throughout the country found that domestic manufacturing sales surged by 29 points in the second quarter to +30% and manufacturing export sales rose by 11 points to +31%. This latter figure is the highest level for four years.
Employment in manufacturing rose 35 points to +19% although services only increased by 1 point to +4%. There was also a big increase in the number of manufacturers reporting pressure on prices.
David Kern, Chief Economist at the British Chambers of Commerce said:
“The UK’s economic recovery is consolidating, and these results support the view that GDP growth strengthened in the second quarter of 20-10. However, the recovery is fragile and is not yet secure.
“Despite an improvement in manufacturing, the sector still faces serious risks. Given the sector’s poor long-term historical record, it is much too early to conclude that we are now seeing a sustainable manufacturing upturn. The service sector, which accounts for the bulk of GDP in the UK, is not recovering at an adequate pace and this heightens the threat of an economic setback.
“This quarter’s poor cash flow data, in both manufacturing and services, indicates that many businesses are still facing serious financial difficulties. Investment and confidence levels remain disappointing across all sectors.
“Many of the factors driving growth this year, mainly stock building and the continued effects of the policy stimulus, are only temporary. As a result, the threats of a relapse remain serious, and countering these threats to growth must remain a priority for policymakers.”
Tags: economic growth, Employment, GDP, Manufacturing, Pricing, services
Posted in Employment, GDP, Manufacturing, Pricing, Service Sector, economic growth | No Comments »
Thursday, June 17th, 2010
The unemployment rate for the three months to April 2010 was 7.9% which was an increase of 0.1%. There was an increase in the number unemployed of 23,000 to give a total of 2.47 million out of work. This is a bleak figure which looks set to become even bleaker. Particularly so, given the fact that there are 5.2 unemployed people per vacancy at the moment.
On the other side of the coin, the number of people claiming Jobseeker’s Allowance (also called the claimant count), actually fell by 30,900 between April and May to reach 1.48 million. This is the first time this measurement has fallen below 1.5 million since March 2009. This may be because more people are being put on training courses and some of those who are losing their jobs may not be eligible for Jobseeker’s Allowance.
Also, according to the ONS, the number of people who are economically inactive, which means that they are out of work but not seeking employment, actually increased by 29,000 during the three months to April. This means that the total of the economically inactive has now reached 8.19 million which is equivalent to 21.5% of the working population.
At the same time, there was a small increase of 5,000 in the numbers employed in the three months to April. But, the number of full-time workers fell by 56,000 over the quarter whilst the number of part-time workers increased by 61,000. The number of those working part-time because they cannot find a full-time job rose by 45,000 over the quarter, and now totals 1.08 million, which is the highest figure since comparable records began in 1992.
The employment situation is a mess and about to get worse. The government’s austerity cuts are already biting. Just yesterday, one of my friends lost her job in education, because “funding has been cut for next year” within the local authority. Of course, the more public sector workers lose their jobs the lower government spending will be on the surface. But then there are all the unemployment benefits which will have to be paid added to the loss of income tax and national insurance which the out-of-work will no longer be paying.
With growth figures being slashed, we are not going to be rescued by the private sector, especially as other governments, especially in Europe, are taking the same sort of austerity measures. If markets dwindle, employment will fall even further. I had a job application this morning from someone who has a “starred” First Class degree and is currently working as a waiter. Your guess is as good as mine as to where it is all going to end.
Tags: Employment, Public Finances, unemployment, unemployment rate
Posted in Employment, Public Finances, economic growth, government borrowing, government spending, unemployment | No Comments »
Monday, June 14th, 2010
The new, independent Office for Budget Responsibility (OBR) believes that UK growth will be lower than previously forecast by the last Labour government. It projects that UK GDP growth will be 1.3% this year, and 2.6% next year. This compares with the previous government’s forecast for 2010 of 3.25%. The OBR also forecasts growth of 2.8% in both 2012 and 2013 and 2.6% in 2014.
What will be the impact of lower growth? Lower growth will mean less taxation and lower government revenues. This will mean that given the current government’s imperative to reduce the budget deficit, that either spending will have to be cut even further or borrowing allowed to rise somewhat. Of course, the danger as I have mentioned previously is that further reductions in government spending are going to derail the recovery and cause a plunge back into recession.
The government has been arguing that the markets will plunge if the deficit is not cut, and yet the markets will also go into freefall if the recovery is curtailed. We seem to be in a Catch 22 situation at the moment.
Professor David Blanchflower, former member of the Monetary Policy Committee has just been quoted by the BBC as saying that cutting public spending could risk sending the UK economy into a “death spiral”.
On the other hand, the OBR has said that the public deficit is not as bad as previously forecast. Its prediction for 2010-11 is that the deficit will fall to 10.5% of GDP as opposed to the 11.1% which the previous government estimated.
Nick Clegg, the deputy Prime Minister, is expected to say today that cutting spending is the most “progressive” option open to the government, as this will help it to protect those most in need. The thinking here is that firstly, if cuts are not made then more government revenues will be spent on debt servicing than on important areas such as the NHS and schools. This poses the question as to whether money should be paid to the banking sector rather than to hospitals and education. Secondly, the argument is that if the government doesn’t make appropriate cuts the market will make the decisions for it with no protection for the neediest sections of society.
Tags: economic growth, GDP, government borrowing, government debt, government spending
Posted in Gross National Income, economic growth, government borrowing, government spending, recession | No Comments »
Monday, June 7th, 2010
This was David Cameron’s take on the UK’s economic situation over the weekend. He said that painful cuts would have to be made which would affect “our whole way of life”.
He also added that: “Because the legacy we have been left is so bad, the measures to deal with it will be unavoidably tough …”
His argument was that unless the deficit was tackled immediately there would be a drop in confidence in the UK economy which would result in interest rates going up, which in turn would increase borrowing costs.
I am getting increasingly worried about the scale of the hysteria concerning government borrowing and the softening up of the UK public to expect severe and prolonged cuts. With Germany announcing its own austerity programme this weekend and international organisations such as the OECD and IMF stipulating the need for cutbacks, we could well see a downward spiral in spending, production and growth. I could see the UK slipping back into recession over the next twelve months.
It is important to point out that there is no general agreement on the need for such swingeing cuts at the moment. Yes, the public finances need to be put on a firmer footing. Yes, we need to trim waste and use government revenue more effectively. But, do we need to cut so quickly and so deeply?
Paul Krugman wrote an article in The New York Times today headed “Madmen in Authority”, in which he slated the demands for fiscal austerity. He maintained that the key thing to realise is that eliminating stimulus spending, while it would inflict severe economic harm, would do almost nothing to reduce future debt problems. Cutting the stimulus would result in lower revenue.
His argument is that the main reason that demands are being made for immediate fiscal austerity is to “reassure the markets” which is the reason that David Cameron has given. Krugman says that “….the markets supposedly won’t believe in the willingness of governments to engage in long-run fiscal reform unless they inflict pointless pain right now.” However, he says that “…there is actually no sign that markets are demanding any such thing” with countries such as the US and UK being able to borrow at very low interest rates.
He concludes by saying: “So wise policy, as defined by the G20 and like-minded others, consists of destroying economic recovery in order to satisfy hypothetical irrational demands from the markets – demands that economies suffer pointless pain to show their determination, demands that markets aren’t actually making, but which serious people, in their wisdom, believe that the markets will make one of these days.”
Tags: Fiscal stimulus, government borrowing, government spending, Interest rates
Posted in Fiscal stimulus, Gross National Income, Interest rates, economic growth, government borrowing, government spending | No Comments »
Wednesday, May 26th, 2010
The latest OECD Economic Outlook says that GDP is projected to rise by 2.7% this year and 2.8% in 2011, across the OECD countries. Previous forecasts last November expected growth this year to by only 1.9% and 2.5% next year.
Whilst economic activity is picking up faster than expected, the OECD warned that sovereign debt markets and overheating in emerging-market economies are presenting increasing risks to recovery.
The latest projections are shown below.
 GDP projections (% change from previous year) Source: OECD The US is expected to see a rise in GDP of 3.2% this year and a further 3.2% in 2011, whilst the Euro areas is only forecast to increase by 1.2% this year and 1.8% next. Japan is expected to expand by 3.0% in 2010 and by 2.0% in 2011.
“This is a critical time for the world economy,” said OECD Secretary-General Angel Gurria. He went on to say that: “Many OECD countries need to reconcile support to a still fragile recovery with the need to move to a more sustainable fiscal path.”
The OECD says that given the strengthening recovery and the huge overhanging debt burden, the emergency fiscal measures which governments used to tackle the crisis need to be removed by 2011 at the latest. However, it does add that the pace of such action must be appropriate to particular conditions and the state of public finances in each country.
It also says that as budgets are being tightened, growth needs to be supported by linking macroeconomic, financial and structural policies. Spending cuts or tax rises should focus on areas that are least harmful to growth, adding that the reform of product and labour markets to enhance competitiveness must also be part of the strategy.
Tags: economic growth, fiscal policies, GDP, OECD
Posted in Fiscal stimulus, OECD, economic growth, government borrowing, government spending, taxation | No Comments »
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