Saturday morning and a great chance to catch up on UK economics news this week with the Economist App. Download the The Saturday Economist 28th January 2012 as a PDF.
The Economist leads this week with China and the paradox of prosperity. Economic conditions and social media are making protests more common in the otherwise delightful, harmonious and happy districts.
Elsewhere, this week in Davos, Oli Rehn the European Economic and Monetary Affairs Commissioner cleared the uncertainty about the euro announcing – a deal to rescue the Greece from economic collapse would be announced before the end of the month. “If not today, then over the week-end and preferably in January and not February.” Yeah thanks for clearing that up Oli.
In the UK there was lots of economics new this week :
GDP figures Q4
GDP figures added to the gloom for some as GDP (quarter on quarter) fell by 0.2%. This twice the level of the fall expected. The ONS cheated forecasters slightly by revising up the Q3 figure 0.1%. The good news – year on year the economy grew by 0.8% in the fourth quarter and for the year as a whole growth was up by 0.9%. The economy is flatlining at just sub 1% growth but this the reality of 2011 and the expectations for 2012.
If debt can be reduced, with no big increase in unemployment in the process, this is the outlook for the next few years.
No reality in the rebalancing rhetoric however, manufacturing was down compared to prior year but service sector growth was up 1.6%. Business and financial sector growth was up 2%. This is no time to put sand in the fuel lines of the engine of growth, hoping for a manufacturing and export miracle which will never materialise. It really is time to accept the reality of economic growth in the UK. Growth is dependent on growth in service sector output and household incomes and expenditure.
Government Borrowing hits £ 1 trillion the headline from the ONS
Government borrowing in December was £13.7 billion compared to £15.9 billion in December 2010. For the year as a whole borrowing was £103 billion down by 10% over the same period last year.
As a result our borrowing forecast for the financial year is £122.5 billion, a reduction of £11 billion on prior year and slightly below the OBR forecasts. In the year to date VAT revenues were up by £11.5 billion (+16%) but taxes on income, profits and capital gains were pretty flat. Don’t expect any reduction in VAT to kickstart spending anytime soon.
Expenditure on the other hand was up by just 2%, interest payments increased by 17% to £37.8 billion on track for £50 billion in the financial year. The average coupon on government debt is 4.5%, current low yields will only impact on new gilt issues, not the outstanding £900 billion of conventional stock outstanding as some would have us believe.
Governor’s speech in Brighton
The Governor of the Bank of England made a speech in Brighton this week suggesting there is no reason to despair. All crises come to an end [and my term of office ends on the 30th June next year], he should have added.
“After the steepest downturn in output since the 1930s, the UK economy is in the process of rebalancing. Starting from a position of excessively leveraged balance sheets, the path of recovery is likely to be arduous, long and uneven. The position of the world economy, especially in the euro area, is serious. Helped by the right policy actions, the UK and world economies can and will recover. And when they do so, they will be on a more sustainable footing than at any point in the past fifteen years.”
From the Governor of the Bank of England, that’s a pretty positive message. On the other hand the the IMF were in no mood to improve sentiment.
IMF marks down growth forecasts for the world economy
With intensifying strains in the euro area weighing on the global outlook, the International Monetary Fund (IMF) sharply cut its forecast for world growth in 2012, saying prospects have dimmed and risks to financial stability have increased. The global growth outlook for this year is just 3.3 percent.
“The outlook for growth is mediocre, and it could be worse,” said Olivier Blanchard, the IMF’s Economic Counsellor. At a press conference in Washington, Blanchard said that “the world recovery, which was weak in the first place, is in danger of stalling. The epicenter of the danger is Europe, but the rest of the world is increasingly affected.” He told reporters there was an even greater danger if the European crisis intensified. “In this case, the world could be plunged into another recession,” Excellent.
Overall, activity in the advanced economies is now projected to expand by just 1.2 percent in 2012 and 1.9% in 2013. In the event of a Euro crisis every country will be affected.
The Euro is the second largest reserve currency after the dollar. Accounting for 25% of world reserves, Euroland is too big to fail. The world needs the Euro. It is less obvious the Euro needs the Greeks.
Round up of the Week
So that’s it – a round up on the economics news from the Saturday Economist. More news and updates next week. JKA
Details of the current forecasts : The UK in Black and White Forecasts for the UK Economy 2012 – 2015 can be found on this web site and on slideshare.