Archive for March, 2009
Tuesday, March 31st, 2009
Figures published by the OECD yesterday show that total net official development assistance (ODA) from members of the OECD’s Development Assistance Committee (DAC) rose by 10.2% in real terms in 2008 to reach $119.8bn. This is the highest dollar figure ever recorded. In total, it represents 0.30% of member countries combined gross national income (GNI).
This is great news for the developing world at the present time of economic crisis. A 10% real increase is very welcome at a time when: world trade is experiencing its largest decline since 1929 and commodity prices are falling; foreign direct investment is declining; and, the budget position of many developing countries has been hit hard by the increases in food and oil prices over the past couple of years. Altogether, this means that many developing countries are not in a strong fiscal position to deal with the current crisis.
In terms of giving, the US continues to be the largest gross donor, donating $26bn in 2008, which was a real increase of 16.8%. Even so, with a ratio of ODA to GNI of 0.18%, the US is still well below the UN target for developed countries to give 0.7% of their Gross National Income. Other major givers are Germany, UK, France and Japan. In terms of GNI ratios, the leading countries are Sweden, Luxembourg, Norway, Denmark and Netherlands, all of whom exceed the UN target. The overall picture can be seen in the graphic below.
In 2005 major donors at the Gleneagles G8 and other summits pledged to lift aid from $80bn in 2004 to $130bn in 2010, at constant 2004 prices. But, the OECD notes that the prospects of economic contraction this year will reduce the level of dollar commitments. They believe that current commitments imply an aid level of $121bn in 2010, which will be below target.
The OECD points out that whilst the full effects and duration of the financial crisis are still to be seen, it is important for aid to play a countercyclical role to help balance the sharp reversal in overall flows to developing countries. The organisation said: “Only a special crisis-related effort can ensure that the 2010 targets for aid are met, which is even more important now that the economic crisis is reducing developing countries’ growth prospects and their ability to make progress towards the Millennium Development Goals.”
Tags: developing countries, development aid, fiscal crisis, Millennium Goals, OECD
Posted in Development, International, Low-income countries, aid | No Comments »
Monday, March 30th, 2009
The number of applications from builders to start new homes fell by almost two-thirds year-on-year during the three months from November 2008 to January 2009, according to the National House Building Council (NHBC). The NHBC also revised down its predictions for new home starts during the current financial year 2008-09 by 5,000 to 80,000. This would give a figure which is well under half the number of new homes started in the previous financial year.
The NHBC said: “In light of these figures, which once again underline the critical state of the industry, we remain of the view that Government intervention, both on commissioning new starts, together with improving liquidity in the mortgage market, is vital.”
 Plummeting private sector house building means government targets will not be hit Research by the Financial Times published last Thursday shows that public provision of new home starts is already running at 45% of the total. This compares with only 20% towards the end of 2007. Whilst the public sector contribution in terms of total house building has remained reasonably constant, the proportion of public to private sector housing has risen, due to the devastating collapse of the private house building industry.
Also, the National Housing Federation (NHF), which represents about 1200 not-for-profit housing associations, has forecast that the number of new homes built in England in 2009-10 could slump to its lowest level since 1921, after revealing that two-thirds of all new properties are being supplied through housing associations. The NHF predicts the number of new homes built in England during the next financial year could slump to just 70,000.
The Federation called for the government to fund the building of 100,000 affordable homes over the next two years, at a cost of around £6.3bn, which could save thousands of jobs in the industry. The NHF estimates that housing associations will build up to 45,000 new homes for rent, or low cost home ownership during the coming financial year. However, this is still a relatively small number compared to the forecast waiting list of five million people for affordable housing.
The government’s target of 240,000 new homes being built every year by 2016 is just not going to happen. Last year the number of new homes built fell by 33,000 to 142,000 and with the current projected falls the situation is only going to get worse.
Tags: house building, Housing, housing associations, private sector, public sector
Posted in Housing | No Comments »
Friday, March 27th, 2009
Retail sales volume fell by 1.9% between January and February . On a year-on-year basis sales grew by 0.4% but this was the slowest pace of growth for 14 years. There was a mixed picture depending on the type of shop. For example, over the past 12 months non-specialist stores showed a decrease of 5.2% but shops that were predominantly food stores only fell by 0.6%.
Between January and February the fashion industry took the biggest hit with falls in the sales of textiles, clothing and footwear falling by 3.7% over the month. The recent trend in retail sales can be seen in the figure below.
 Volume of retail sales, all retailers, seasonally adjusted. Source: ONS
The fall in the figures associated with the fashion sector were emphasised by some recent trading results which have just been published. For example, whilst Next saw an increase in sales of 11% in their last trading year, their profits were down 75%; JJB sports saw their sales fall by 6%; and, Moss Bros saw no change in sales and a £9m fall in profits.
When looking at the size of stores, the ONS has produced some very interesting figures. Retailers with over 100 staff actually saw their sales increase by 0.8% in February compared with a year earlier. However, the next grouping down which employed between 70 and 99 employees saw sales fall by 18.6%. Obviously, the very large supermarket companies with employment in the tens of thousands are doing very well but the mid-size groups are finding it much more difficult. By contrast, those employing between 10 and 39 staff saw sales drop by 6.5%.
The sales volume figures were below forecast and very disappointing , particularly following the decent sales over Christmas and the New Year. Why did retails sales fall? This was particularly due to the difficult trading conditions. The fall in the housing market has hit furniture and do-it-yourself stores, with B&Q posting a 75% drop in profits. Otherwise, increased unemployment and gathering uncertainty have created more caution such that households are concentrating spending on what they really must buy. This is why the large food retailers are still holding up well.
Oh, yes. One of the other major reasons for the fall in retail sales volume last month was all that snow that fell. It might have looked like Christmas but many people could just not get to the shops.
Tags: Add new tag, consumer spending, retail sales, Retailing, unemployment
Posted in Consumer Expenditure, Retailing | No Comments »
Thursday, March 26th, 2009
Just a week to go before the G20 meeting in London and the EU has stirred up trouble with the US. Yesterday, Mirek Topolanek, prime minister of the Czech Republic and currently holding the EU presidency set the 27-nation EU bloc at loggerheads with the US, by describing the US fiscal stimulus as “the road to hell.”
Topolanek said: “The US is repeating mistakes from the 1930s, such as wide-ranging stimuluses, protectionist tendencies and appeals, the ‘Buy American’ campaign, and so on. All these steps, their combination and their permanency are the road to hell.” In response, the US claimed that all of its ‘Buy American’ provisions are currently consistent with the World Trade Organisation’s rules and will continue to be.
 Has Mr Topolanek put the EU on a collision course with the US?
There seems a sharp division at the moment between those countries who are committed to making a large fiscal stimulus and those that are more cautious. For example, the International Monetary Fund has called on countries to spend at least 2% of GDP to boost their economies, claiming that if all countries work together, there will be spillover effects as countries will be able to sell more of their product to other nations. The US, China and Britain have all committed to large fiscal inputs but other countries are more reluctant. According to the IMF, France is only spending 0.7% of GDP on fiscal stimulus – the smallest of the G20 group.
There is also the question of budget deficits. In the EU, under the Stability and Growth Pact, nations are obliged not to allow their budget deficit to exceed 3% of GDP and much progress has been made on this. So much so, that there is a general reluctance not to give up the good work which has been achieved through fiscal discipline. In fact whilst the US is planning a budget deficit of 8.9% of GDP and the UK is forecast to have a deficit of at least 11%, the deficits in Germany and France by contrast are planned at 5% and 6% respectively.
Given the apparent rift between the Bank of England and Gordon Brown as well, (see yesterday’s blog), the G20 meeting should be particularly interesting.
Tags: Bank of England, fiscal stimulus. EU, G20, Gordon Brown, spillover effects, US
Posted in Bank of England, European Union, Fiscal stimulus, International Monetary Fund, Protectionism, US economy | No Comments »
Wednesday, March 25th, 2009
Yesterday, Mervyn King, Governor of the Bank of England, was answering questions from MPs at a Treasury committee. Just another routine meeting you might think. However, the governor grabbed the headlines by breaking with a convention of the Bank of not discussing the public finances in the open.
He basically warned Gordon Brown against mounting another significant fiscal stimulus in the next Budget. He said: “I think it’s right to accept that when the economy turns down and the automatic stabilisers kick in, so the increased benefit expenditures and lower tax revenues are bound to lead to higher fiscal deficits.” He went on to say: “There is no doubt that we are facing very large fiscal deficits over the next two to three years. I think the fiscal position in the UK is not one where we could say, well, why don’t we just engage in another significant round of fiscal expansion.”
Mr King is obviously worried that debt levels would become unsustainable and that any further increases in expenditure could affect future inflation levels. In fact, the IMF has forecast a budget deficit of 11% of GDP in 2009-2010 (see my blog of 23rd March) and only yesterday the European Commission said that Britain had until 2013-14 to bring its budget deficit back down below 3% of national income.
Mr King did say that there was still some room for “targeted and selected measures” for increased expenditure in some areas of the economy, but his comments did come at a difficult time for Gordon Brown who is, at this moment, jetting around the world before next week’s G20 meeting, to persuade member governments to back plans for a greater fiscal stimulus.
Of course, the Governor of the Bank of England has no power to cut up the Prime Minister’s credit card, but he has put a warning shot across his bows. Government spokesmen acted quickly in response to play down any rift between the Bank and the government.
Tags: automatic stabilisers, Bank of England, budget deficit, fiscal policy, Fiscal stimulus, Inflation
Posted in Bank of England, Fiscal stimulus, Public Finances, government borrowing | No Comments »
Tuesday, March 24th, 2009
Just published by the ONS at 9.30am today, the latest inflation figures show that the Consumer Prices Index (CPI) annual inflation - which is the government’s target measure – rose by 3.2% in February. This was up from 3.0% in January.
This means that the CPI is moving away from the Bank of England’s 2.0% target, after the Bank has been telling us that this measure of inflation was going to fall sharply this year.
Why has it risen? According to the ONS the largest upward pressure was from food and non-alcoholic beverages, with the largest individual component being an increase in the price of vegetables.
The recent trend can be seen in the figure below.
 Annual Inflation Rates - 12 month percentage change. Source: ONS
There were also other large, upward pressures on the CPI from recreation and culture, particularly toys and computer games; transport costs due to the price of petrol rising 3.2 pence per litre between January and February; household equipment, with rises in the prices of major appliances and household goods; and, clothing and footwear where prices rose by more than a year ago.
The only large downward pressure came from the fact that gas and electricity bills were unchanged this year after having risen a year ago.
The Retail Prices Index (RPI) fell to 0.0% in February, which was a fall from the 0.1% registered in January. This index was affected in much the same way as the CPI but with the exception of the downward pressure from housing as mortgage interest payments continued to fall reflecting the drop in base rates. These payments are excluded from the CPI index.
The latest international comparison shows that UK inflation is running well ahead of that in the EU as a whole. This shows a UK figure for the CPI in January of 3.0% compared with a provisional figure for the whole of the EU of only 1.7%.
With such upward pressure on prices it appears that deflation is not on the immediate horizon.
Tags: CPI, Deflation, Inflation, RPI
Posted in Deflation, Inflation | No Comments »
Monday, March 23rd, 2009
In a news release issued this morning by the Confederation of British Industry (CBI) the organisation submitted its budget proposals to the Chancellor. The CBI warned that “the alarming state of the public finances rules out the option of a further significant fiscal stimulus.”
John Cridland, CBI Deputy-Director General said: “The public finances have been battered by the cost of rising unemployment and lower tax receipts during the recession. With economic activity expected to contract by 3.3 per cent and unemployment set to reach nearly three million this year, the outlook for the public finances is already alarming. Against this backdrop, a further significant fiscal stimulus is unaffordable and would lead to businesses and households retrenching in fear of higher tax bills in the future. Instead, the Chancellor needs to let the considerable stimulus already in the pipeline take effect and deliver a clear and credible plan for restoring the public finances to health.”
In fact, UK government borrowing has already reached £75.2bn in the current fiscal year and is expected to exceed the government’s earlier forecast of £77bn for the year as a whole. But, this is set to become a whole lot worse. According to the Ernst & Young Item Club, at the end of last week, net borrowing will rise to £180bn in the 2009-2010 tax year.
 The Chancellor has few options in upcoming Budget
Whilst the IMF forecast last week that the UK would have to borrow 11% of national income to meet their financial obligations, which would be the highest figure amongst the G7 countries, the Item Club forecasts that this figure will reach 12.6% of GDP over the coming year and that there will be deficits over the next ten years. Peter Spencer, chief economic advisor to the Item Club argued that “The Chancellor must provide some credible forecasts for the public finances and present an unambiguous medium-term plan for restoring them to health.”
Ian McCafferty, CBI Chief Economic Advisor has argued that: “There is no room for further fiscal demand stimulus. If automatic stabilisers are taken into account, there is already a very significant amount of fiscal stimulus in place, of over three per cent of GDP.”
With the next Budget less than a month away, on 22nd April, the Chancellor, Alistair Darling appears to have very little room to manoeuvre.
Tags: automatic stabilisers, government borrowing, Public Finances, the Budget
Posted in Fiscal stimulus, Public Finances, government borrowing, taxation | No Comments »
Friday, March 20th, 2009
What can we learn from the Great Depression of the 1930s? Christina D. Romer, who is chair of the US Council of Economic Advisers, presented a paper to the Brookings Institution in Washington last week.
She suggests six major lessons.
A small fiscal expansion has only small effects.
Monetary expansion can help to heal an economy even when interest rates are near zero.
Beware of cutting back on stimulus too soon.
Financial recovery and real recovery go together.
Worldwide expansionary policy shares the burdens and benefits of recovery.
A key feature of the Great Depression is that it did eventually end.
To see the full article and her reasoning go to: http://www.brookings.edu/~/media/Files/events/2009/0309_lessons/0309_lessons_romer.pdf
Tags: Great Depression
Posted in US economy, recession | No Comments »
Thursday, March 19th, 2009
Interestingly enough women appear to be doing better than men in the current recessionary conditions in the labour market, according to new data produced by the ONS.
At the beginning of 1971 the overall employment rate for women was 56% as opposed to 70% in the last three months of 2008. By contrast, over the same period, the male employment rate fell from 92% to 78%. This can be seen in the figure below. According to the ONS the difference can be partly explained by the fact that more women are likely to work in the public sector than men, and this has been more ‘sheltered’ than the private sector over the last half of 2008.
 Annual percentage point change in employment rate: by sex, UK, seasonally adjusted. Source: ONS
As far as unemployment is concerned, rates for women also grew at a slower pace than for men during last year. The unemployment picture is shown in the figure below.
 Quarterly percentage point change in unemployment rate: by sex, UK, seasonally adjusted. Source: ONS The unemployment rate for women was 5.5% in the three months to December 2008, which was up 0.3 percentage points on the previous quarter, while the rate for men was 6.9% which was 0.6 percentage points up.
Tags: Employment, unemployment
Posted in Employment, unemployment | No Comments »
Wednesday, March 18th, 2009
In a paper prepared for last weekend’s G20 meeting of Finance Ministers, the World Bank said that the global economy is likely to shrink this year for the first time since the second world war. With growth at least 5 percentage points below potential, the World Bank forecasts that global industrial production could be as much as 15% lower by the middle of 2009 compared to levels in 2008. World trade is also on track to record its largest decline in 80 years, with the sharpest losses being experienced in East Asia.
The World Bank also said that developing countries face a financing shortfall of $270-700 billion this year. The paper said that 94 out of 116 developing countries have experienced a slowdown in economic growth. Of these countries, 43 have high levels of poverty. The sectors which are most affected are those which are typically urban-based exporters, construction, mining and manufacturing. Cambodia, for example, has lost 30,000 jobs in the garment industry.
 Global economy set to shrink and world trade to decline
The World Bank Group President, Robert B Zoellick said: “We need to react in real time to a growing crisis that is hurting people in developing countries. This global crisis needs a global solution and preventing an economic catastrophe in developing countries is important for global efforts to overcome this crisis. We need investments in safety nets, infrastructure, and small and medium size companies to create jobs and to avoid social and political unrest.”
The paper also said that many of the world’s poorest countries are becoming ever more dependent on development assistance as their exports and fiscal revenues decline because of the crisis. The developed world is already behind by around $39 billion on commitments made at the Gleneagles Summit in 2005, and the concern is that some countries will now start to cut their aid budgets. World Bank Chief Economist, Justin Yifu Lin said: “Clearly fiscal resources do have to be injected in rich countries that are at the epicentre of the crisis, but channelling infrastructure investment to the developing world where it can release bottlenecks to growth and quickly restore demand can have an even bigger bang for the buck and should be a key element to recovery.”
Tags: Development, global economy, World Bank, world tade
Posted in Development, International, Low-income countries, World Trade | No Comments »
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