Fortnightly insight into the current state of the economy and how it relates to Dorset
by Nigel F Jump, Chief Economist of Strategic Economics Ltd (a Dorset Company) and Visiting Professor in Economics at the Universities of Bath and Plymouth.
See: www.strategiceconomics.co.uk
As normal, after a long economic ice age, everyone’s starting to get a bit excited about the first signs that temperatures are rising.
- Good UK economic news since late June on GDP, employment and housing has started to raise the economic mood of consumers and businesses alike.
- Business confidence and activity surveys are recording improvements across the board and the financial markets, despite Mr Charney’s warnings, are starting to price in a more normal yield curve.
- International forecasters, as I predicted earlier this year, are starting to raise their expectations for the United Kingdom and the western developed nations as a group.
In the next few weeks, we might hear some coalition crowing about the economy at the party conferences and even some looking forward to the 2015 General Election.
As usual, however, it is the job of the professional economist to counterbalance the more extreme mood swings.
- The numbers are better but not good. For example, July’s UK production level was still 1.5% down on a year earlier and almost 14% down on the pre-recession peak.
- Also, the UK trade deficit on goods in July was nearly £10 billion. Not much sign of economic rebalancing going on there.
- Big structural issues remain to be addressed in southern Europe and some emerging markets and too many economic players (households and governments at home and abroad) are still carrying too much debt – the banks are not out of the woods yet.
- Moreover, family incomes are still falling in real terms as inflation and wages worries persist.
There is a lot of economic damage yet to be repaired and the markets are vulnerable to further shocks. Even if sustained, there is a tendency for recoveries to bring out some bad news in terms of foreclosures on mortgages and corporate debt, corporate closures (forced or not), labour redundancies and personal bankruptcies.
We can cheer that the economy appears to be climbing out of the long downturn at last (though it may not actually emerge for another couple of years). Locally, we can cheer that Dorset may be coming through relatively unscathed. But, we must not get carried away. There is a long slog ahead; there will be setbacks; and there are many elements of transition/reform towards sustainable economic growth that we have yet to negotiate.
Moreover, a sustained recovery will largely be in spite of rather than because of the policy mix. Monetary and fiscal policies are not adding any forward momentum. Politicians will no doubt try to take the credit and/or shout the discredit but, in the end, what goes down cannot stay down forever. The truth is, infrastructure, machinery and goods wear out and have to be replaced; new technology and skills come along which require new investment; and idle liquid funds earning little or no return will start to be activated. Rely on the human spirit to allow confidence to build a gradual recover but remember how vulnerable we remain to further setbacks. Carry on but don’t get carried away
Professor Nigel Jump, 9th September 2013
