I am aware that I am not the most optimistic of economic forecasters at present. But I am not alone. As the FT has just reported, referring to work from the OECD out today:
While all advanced economies have been hit by the pandemic, there are likely to be substantial differences in performance depending on how well nations perform in dealing with the virus, according to the OECD.
South Korea, which has implemented effective testing, tracking and isolating of coronavirus cases, is expected to contract by only 1.2 per cent in 2020, followed by growth of 3.1 per cent next year.
By contrast the UK will suffer the largest contraction this year, with economic output falling 11.5 per cent followed by a 9 per cent rise in 2021, the OECD said.
I think the forecast rise very optimistic.
And remember that a 9 per cent rise is based on an economy that was only 88.5% of what it might have been: the two figures can't be directly compared as a result
As I suggested earlier today, the UK government's management of this crisis is going to impose cost that is going to put us at a real comparative disadvantage in this country, and that is before Brexit without a deal, which is almost inevitable.
The consequences are deeply uncomfortable.
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Economic forecasting is notoriously difficult. “Economists exist to make astrologers look good” is the quip that springs to mind. This means is that it is fairly easy to find evidence to fit more or less any narrative you like. I am as guilty of this as anyone…. but I won’t let that stop me letting you know what I think!
I fear that the recovery in the stock market is blinding policymakers to the real underlying problems. In the US and the UK we are led by people that take it as axiomatic that a strong stock market signals that things are OK….. when they are not.
My son tells me that with no professional sports to bet on people are turning to the stock market as a place to gamble. The FT has a lovely story about Hertz shares that are up 800% from the lows despite being in Chapter 11. Robinhood as seen a 400% rise in new account openings and 140,000 of its clients have traded Hertz shares – it is amazing….. and to think that our leaders believe that markets are “all knowing”.
(Don’t get me wrong, I am a great fan of markets….. great places to but fruit and veg or buy/sell stocks and shares…. but never think they predict anything)
The other story was about looking for alternative indicators of recovery. In the old days we would look at freight car traffic or electricity use but now is is sat nav requests and other similar data. Yes, this is all good stuff but nobody ever mentions the base effects…. of course the month on month data will improve…. but this does not mean things are good – just slightly better than terrible. And don’t get me started on the survey data! The commentary will be “the PMI improved from 30 to 40” NO!! this still means that most people still think things are getting worse….. and that is from an already bad situation when they were surveyed last month.
I know I am one-eyed but the bullish case requires a vivid imagination.
Finally, the Fed meets this week and the market is convinced that they will “do whatever it takes” to keep the stock market buoyant. Can they? Will they? First, there is a limit to what liquidity can do for the real economy…. and we have reached that limit… and the Fed has said as much. Second, the Fed are not fools – they can see the opinion polls and realise that they may have to work with a new administration soon. They will not want to be seen as being bullied by Trump.
I think that this is the top (3,200 on S+P in round numbers)….. but as my friend says…. “there is only one thing more stupid than a stock trader…… it’s a bond trader that thinks he is a stock trader”.
🙂
Much to agree with
You allude to it, but growth of 9% after a decline of 11.5% does not get you back almost to where you started. It is worse than a 2.5% fall. To make it more concrete: a fall of 11.5% in 2020 (if it is as small as that) followed by a rise of 9% in 2021 (if it happens) would mean at the end of the two years the economy was still 3.5% smaller than it was at the start (because (1 – 0.115) * (1 + 0.09) = 0.96465)
There were recent arguments about whether the number of deaths in the UK (population about 65 million) is as about as bad or worse than the whole of the EU (population about 450 million). Hello? If we are more than a seventh, it is worse. About the same is SEVEN TIMES worse.
At some point the government will need to have answers to the question, why did so many people die in the UK?
Even an 11.5% fall followed by an 11.5% rise does not get you back to where you started since the economy would still be 1.3% smaller.
Agreed
Indeed. You’d need economic output to grow by nearly 13% in year 2 to get back to where you started. When was the last time the UK achieved that?
In real terms, I suspect never
I can’t see it in peacetime, ever
My initial reaction to hearing about growth figures going down is “yippee” as I associate growth with growth in the power of the wealthy at my expense and, more importantly, growth in environmental destruction. Is anti-growth not the thing we need? We need it to be managed and the consequences borne by society in a spirit of mutual support so we minimise the pain. But degrow, surely, we must?
I think we will
There is growth and growth.
More and better paid carers, more medical staff…… that is growth.
More music, art and poetry ….. is growth.
More renewable energy…… is growth.
With or without growth, transformation is required….. and I think that this is more easily achieved in a growing economy. That is why the Green deal is crucial, that is why increased spending on health is important, that is why artists are important too. If you want to squeeze out the bad parts of the economy then it is more easily done if we can offer more satisfying/productive employment elsewhere.
I agree with that
It is why I do not agree with degrowth
There is almost no limit to what we can do for each other
I’m sure there will be increased health spending- but it will all be in the private sector to try to stop the waiting lists getting any bigger- the proper NHS will not get any of it.
This virus is a gift horse that just doesn’t stop giving for the neo-cons.
I am currently looking up Eurostat population data because I am updating the country table on our Europe wall map, but I notice they project the EU27 to have a population of 416 million in 2100 compared to 447 million in 2019. At present 13 member states, mostly Eastern Europe but also Portugal and Italy, currently have falling populations. Romania is shrinking fastest and will be down by 10% by 2030. This trend is applying to most of the World outside Africa, so China, as a legacy of the one child policy, could fall to 800 million from the present 1.3 billion. Fewer people will greatly assist in reducing the environmental impact. Modern society has, for the median citizen, turned children into a very expensive luxury! An issue we may well have to address before too long. I suspect excessively elderly societies become fossilised and very risk averse.
Redundancies have already been announced in many sectors, and, as I said to a friend – it is perfectly easy to see that e.g. a hairdresser may have to lay off staff once furlough starts to cost them, since they can only fit so many punters in the chairs each day, esp with social distancing requirements. Sure, some will extend opening hours to cope with pent up demand, but I guess that will tail off. On that basis, it is fairly easy to see unemployment of 25% in many sectors. Some construction related businesses locally have bitten the bullet and reduced staffing, in a way not seen since maybe early nineties when many middle managers were ‘let go’.
I think the answer lies in massive youth unemployment and extending sick pay to most over 50 year olds – oops, we tried that in the 1980s..
We surely need some imaginative thinking going on; meanwhile in Downing St, the lights are on but…..
In theory all Starmer has to do is sit back and watch the UK economy disintegrate under Johnston and the Tories. No more getting on the wrong side of an emotional argument though (Colston Statute Incident)! Also has anybody bought him a copy of Stephanie Kelton’s “The Deficit Myth” so he actually knows what he’s doing when he wins office?
https://www.amazon.co.uk/Deficit-Myth-Modern-Monetary-Economy/dp/1529352525/ref=sr_1_1?crid=6MHX82W0RPSH&dchild=1&keywords=the+deficit+myth+stephanie+kelton&qid=1591793162&sprefix=The+Deficit+Myth%2Caps%2C252&sr=8-1
Excellent writing by the way. Leads the reader by the hand through what is a complicated and emotional issue!
Indeed…
book suppliers with better tax and employment history are also available
https://www.hive.co.uk/Product/Stephanie-Kelton/The-Deficit-Myth–Modern-Monetary-Theory-and-How-to-Build-a-Better-Economy/24893726
Managing an economy is a complex & difficult task – even in normal times. Managing a pandemic is simpler – since it mostly boils down to two tasks: stop people geting infected and stop people dying. The tories abjectly failed with respect to Covid, regardless of the deluded gibberings of Pol-Fatberg-Pot the UKs “dear leader” in the House of Commons yesterday. If the Tories can’t even show competence in the simple task of “stop citizens dying” – what hope for the economy?
Past tory “governments” (I use the term losely) have had a “one-trick-pony” approach to the economy: keep house prices rising and make sure those that fund the tory party operate in a comfortable enviroment. Everything else is done on an ad-hoc/only if we must basis. Such a laissez faire approach means that the UK faces an economic (and by extension – social) disaster in 2021 as the twin impacts of Covid knock-on effects and Brexit combine together for the perfect storm – which the tories are functionally incapable of addressing..
From the point of view of basic competance Covid has shown that the Tory gov has a collossal incapacity for structured thought or coordinated action – they are incapable of management of even the most basic sort. I doubt if Fatso has ever thought anything through carefully in his entire miserable & useless existence. Chaotic and disorganised – words regularly used to describe Fatso – & he is the PM.
There is going to be civil disturbance & almost certainly UK breakup and this will wholly be due to the current crop of village idiots playing at “government”.