Tag Archives: eurozone recovery

Cameron tries to blame foreigners for UK ‘recovery’ fizzling out

It’s a bit rich for Cameron, in his statement toriseday from Brisbane, blaming the world out there, particularly the eurozone, for the fading UK recovery when those countries are pursuing almost exactly the same economic policies as he is.   That is relentless and unending austerity, which he conspicuously failed even to mention.   Now that the blip in UK economic growth between Q2 2013 and Q4 2014 is manifestly deflating (was this part of the long-term economic plan that Cameron-Osborne continually talk about?), the prime minister needs an alibi.   It’s easy to pick on the eurozone which has indeed only avoided falling back into recession because of a surge in the French government’s public spending (please note, Mr. Cameron), but the reason the eurozone is in such a bad way is that Merkel has enforced unrelenting fiscal austerity – exactly the Osborne programme.   That euro-austerity has crippled the euro southern periphery and has now undermined the German economy itself which depended on that same euro periphery for its export-led growth.
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Osborne’s own policies are shrinking tax revenues, yet he demands even bigger spending cuts to compensate

There are now unmistakeable signs that Osborne’s so-called economic recovery is fading, despite all the right-wing think tanks and pro-Tory media to talk it up.   A survey of 7,000 businesses by the British Chambers of Commerce has just found that manufacturers have suffered a sharp slowdown in export orders, and even more significantly domestic sales and orders – the part of manufacturing that has been faring better due to household expenditure based on rising debt – are now also reported to be slowing.   The third quarter growth figures also show the UK economy losing steam, down from ).9% in the second quarter to 0.7%.   The TUC has just reported that not since 1865-7 has there been a comparable squeeze on earnings for British workers, with an 8% fall in real earnings between 2007-14, and the fall is still continuing with the latest figures this year showing annual wage growth of 0.7% against inflation at 1.5%, i.e. a further real wage fall of 0.8%.   There is then a serious knock-on adverse effect in a reduced tax take for the government which is actually this year increasing the deficit (from the current £100bn to around £105bn) when Osborne’s whole object is ostensibly above all else to cut the deficit.   His austerity programme is now beginning to eat itself.
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The economic ‘recovery’ won’t hold till election next May

Fortunately for Osborne, Scotland is keeping the parlous state of the economy out of the news.   UK manufacturing export orders have now turned negative for the first time in nearly 2 years, dimming any expectations that manufacturing and exports would lead the way in any upsurge.   The immediate reasons blamed are the flagging Eurozone economy, the rise in geopolitical risks, and a stronger sterling exchange rate now recovering from the earlier panic about the Scotland vote.  The longer-term and much more disturbing reason is the crass neglect of manufacturing during and since the Thatcher era and the abandonment of regional policy after the de-industrialisation of the North.   What these latest figures show is that the recovery, such as it is, is wholly reliant on growth in financial services, since this is still the only sector which has exceeded its pre-crash peak.   Manufacturing remains in the doldrums still at 7% below its peak, and construction even deeper mired in stagnation at 10% below.
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Stop austerity & cut deficit by printing money & sending cheque to every household (except rich)

Arnaud Montebourg, France’s economy minister who has just resigned, is quite right.   He denounced austerity policies as “absurd” because they had brought about “the most destructive crisis in Europe since 1929”   He rightly attacked the Eurozone’s fiscal stance as “the cause of the unnecessary prolongation of the economic crisis and the suffering of the European population”, and he correctly demanded a major change of policy away from “the extreme orthodoxy of the German right”.   Montebourg is not the only one who has been railing against the absurdity of counter-productive policies which are relentlessly dragging down the Eurozone into deflation.   Renzi, the young Italian prime minister, has rightly been demanding an easing of over-tight fiscal policies and a longer timescale to generate the growth to enable his country to overcome its excessive indebtedness.   Italy, like Japan before it, has now endured nearly two decades of falling living standards and in the absence of growth will soon find maintaining its interest payments unsustainable.
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Eurozone ‘recovery’ collapse gives Osborne excuse for his own failure as UK ‘recovery’ peters out.

The Office of National Statistics (ONS) report yesterday that the average earnings growth rate has now fallen by 0.2%, the first time it has fallen below zero since the crash in 2008-9, is devastating for UK economic prospects and for Osborne’s bombastic claims about the great UK economic surge.   It is devastating because the only other three bases of demand are all seriously negative as well.    Business investment is still 10% below pre-crash levels because investors have no confidence that the UK recovery will last, net exports (the excess of exports over imports) are disastrously negative by about £115bn this year, and government expenditure is being screwed down by Osborne’s counter-productive policy of trying to reduce the deficit by cuts rather than public investment in stimulating the economy.   The fourth base for potential demand is household expenditure, and with average wages this year now nearly 2% below inflation, that source of demand will dry up completely.   Of course Osborne will crow about the 1.5 million jobs allegedly created in the private sector since 2010, but with two-fifths of them taken up by self-employment where the average drop in incomes is now 14% below pre-crash levels and  with the rest mainly low-paid, insecure jobs on zero hours contracts (wage slavery rather than jobs), there is certainly no increase in demand from that source either.
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Last quarter’s 0.8% fall in UK construction output is early sign that Osborne’s ‘recovery’ has lost momentum

The latest economic figures revealing a shock fall in construction output of more than 1% between April and May this year are alarming, but might be brushed off as an isolated quirk if all the other evidence pointed the other way.   But it doesn’t.   The construction slowdown is matched by an unexpected slump in factory output as well as a worrying widening of an already bloated trade deficit.   The latter reflects the dampening effect on UK exports as the pound has steadily strengthened over the last year, reaching the highest level (£1=$1.7) for 5 years.   UK export prospects are further deflated by the way the eurozone is mired in seemingly endless austerity because the major debtor countries – Greece, Portugal, Spain, Italy – cannot while locked inside the single currency achieve the growth necessary to cut their deficits when their debts are still rising.   All this makes it unlikely now that the UK will have matched in the second quarter of this year, let alone exceeded as was confidently predicted, the 0.8% growth secured in the first quarter.   That suggests that Osborne’s much-trumpeted recovery may already be beginning to fade.
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Valls and Renzi are pure Blairite, which means there’s little hope for Eurozone

Valls and Renzi, the new prime ministers of France and Italy respectively, have made clear their respect for Blair and their intention to follow his example.   That’s bad news for the Eurozone and for the EU in general.   Blairism is not an economic ideology, but rather a style of leadership that is far more about presentation than substance.   So far from representing any new economic ideas, it swallowed the existing free markets capitalist fundamentalism hook, line and sinker.   That’s why following the Blairite line in France and Italy, both countries in deep economic difficulty, is likely to be so self-destructive.   Free market deregulated capitalism isn’t part of the answer, it’s the central problem.   The international economy tanked in 2008-9 because the banks had too much power and negligently and recklessly abused it, and the UK has taken so long to recover because deregulated capitalism decimated British industry in the previous 3 decades in favour of the City of London, whilst at the same time generating the biggest inequality between the very rich and the very poor since the Edwardian age.   To regard  such a programme, which Blair eagerly promoted, as a model for recovery borders on absurdity. 
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If you doubt the Osborne-inspired complacency is fantasy, look around

Osborne preened himself – yet again – at the IMF conference 2 days ago that the Western economies are now set for a prosperous future even as central banks steadily withdraw the lifeline that kept them afloat after the 2008 crash.   The line is that normality is returning after the unfortunate blip 5-6 years ago that required more than $3 trillions of funds to be pumped into the US economy and £375bn of quantitative easing into the UK economy to prevent a catastrophic credit crunch.   The idea that such enormous sources of demand can be gradually but increasingly withheld and that interest rates can be pushed up again to a ‘healthy’ 2-3% without any disturbance to markets is pure complacent folly.   There are two grounds for serious pessimism.   One is that the recovery internationally, not just in the UK, from the longest recession since the nineteenth century remains weak and fragile.   The other is that the levels of debt in the system remain disturbingly vast and dangerous, and indeed the whole emphasis of policy has been to encourage this as the last desperate throw to snatch growth from the jaws of stagnation, but without any regard to inflating future risks.
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UK growth greatly exaggerated: why doesn’t Labour propound investment alternative?

There are four reasons why the future of the UK economy, both internally and externally, does not look good.   No sustainable recovery can occur till these four obstacles have been cleared, and of that there is no sign.   First, the collapse in business investment has been devastating: it is still 25% below its pre-crash level.   What this means is that industrialists are still not convinced that the relatively small and very late turn-up, generated in the wrong way by consumer borrowing and the artificial Help-to-Buy bribery, signals any long-term recovery of demand.   The £800bn cash stockpile on which the big corporates are sitting is still not being used to invest.   According to the Economist Britain is actually 159th lowest in the world in terms of business investment.   Until that is massively turned around, Osborne’s contradictory ‘expansionary fiscal contraction’ will continue to be the fraud it is.

Second, there are no productivity gains in sight, quite the reverse.   Employment, albeit much of it part-time or at or below the minimum wage of £6.31 an hour or indeed subject to zero hoursc contracts, has increased but without any corresponding or greater increase in output.   UK productivity is therefore at almost the lowest ebb in the EU, and without a real and continuing rise in wages (now 9% in real terms below the 2007 level) there cannot be the productivity gains to embed growth.

Third, the UK debt overhang is growing, not reducing.   If by 2015 total government debt is nearly equal to total GDP and is still rising at 8% a year (as it is at present if special factors are discounted) plus the current account deficit is still continuing to run at the very high (and rising) rate of 4% of GDP, and with no realistic prospect of either ratio improving, the UK’s situation becomes increasingly unsustainable.   Similarly, the budget deficit is not going down appreciably either.   In 2011 it was £118bn and in 2012 this had hardly fallen at all at £115bn.   The 40% cut in public spending budgets and the £18bn cut in benefits and hence in consumer demand, plus the £40bn further intended cuts after 2015, has produced searing pain, yet next to nothing improvement in the national accounts which was supposed to be the whole aim of the exercise.
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