The Office for National Statistics has published January GDP data this morning. It feels like news from another era. As they note:
But so what? In February 2022 Putin invaded Ukraine. The ONS press release does, despite that, assume there will be a continuum between what happened in January and what is happening now and hereafter. And that is simply wrong.
As I keep saying, everything has changed as a consequence of the invasion of Ukraine. It is apparent that as yet large parts of the government, and I have no doubt society at large, have not or do not want to notice. Rather, as in the UK's phoney war from September 1939 to the spring of 1940, I suspect there are many who think that what is happening in what they think to be far off places has nothing to do with us. They are wrong. It has.
Although it is now being made the excuse for all the consequences of Brexit and Covid as well, the war in Ukraine is going to change our economy, for good. The relative price of carbon-based energy has changed forever, I suspect. So too has the price of wheat-based food, even if that is not being seen quite as hard as yet. It will be years, and maybe not in lifetimes, before the 25% of world wheat supply that comes from Russia and Ukraine is seen in the rest of the world again.
The fundamental cost of living is altered as a result of what has already happened. And even if Ukraine survives, as we hope, Russia will still be a state outside the world economy for some time to come, meaning that these impacts will continue, come what may.
To pretend then that all is back to normal, as the ONS press release wishes to imply, is an act of collective putting of heads in the sand in pretence that all is well when that is simply not true.
We live in another world now. It is time to recognise the fact.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
Apologies for asking a probably really dumb question, but do widespread price increases not automatically result in an increase in GDP even if economic activity is static?
Yes, in nominal terms but measures are also then inflation adjusted
It is difficult to see where this ends. The impact of the Ukraine war on fuel and food prices will last at least another year. I doubt there will be much planting in Ukraine this year, so this year’s harvest will be lost and can’t be made up until next year at the earliest.
But if Ukraine ends up under Russian control, and they sell their oil and gas and wheat and other grains (and 50% of the world production of sunflower oil) to China, replacing imports from elsewhere, perhaps that would not be too disruptive.
Production and exports are very different. The largest producers of wheat are China and India, largely for domestic consumption, then Russia 3rd, then the US, France, Australia, Canada, and Pakistan. Ukraine is 9th. But in terms of exports, Russia is first, and Ukraine fifth. So perhaps this results in a realignment, with Russia’s imperialist dream of a place on the world stage as a primary production satellite of China.
However it goes, there will be much dislocation and trouble along the way. Europe has to learn to survive without Russian oil and wheat. It is time to switch away from fossil fuels and more sustainable agriculture with lower inputs.
I wondered whether these changes meant that Russia, China and others, might accelerate the dollars fall from reserve currency status by developing an alternative, as well as other measures, like another SWIFT, or after the expulsion of Huawei from google play, develoo their own competition to Google, as they seem to have done with quite a few platforms?
They will try
I am seeing big changes in supply chains (obviously a lot started with Brexit). The thinking now is if I can get something down the road at currently 15% more than from China/India/Moldova, at least I will have it.
This argues for a lot of import substitution, but at a substantial cost, adding to inflation. With the UK suffering from industrial decline, it suggests a greater and greater dependence on the EU for key components.
So much for sovereignty.
Perhaps the seemingly low prices that globalisation brings do not include externalities such as a risk of disruption of supply. A shortening of elaborately over-extended supply chains, in favour of more local and less fragile sourcing, also less dependent on cheap energy and frictionless distribution, might be a good thing. Perhaps even better to rebuild domestic capacity to produce basic resources and components, than importing them from China or even the EU.
Anything to appear to be in control of something.
Pathetic. This stuff rusts very quickly.