Lyev
21st August 2010, 13:55
Discuss. How much is just the media whipping up a fuss? As I understand, a "double-dip" is induced if public-sector cuts happen to heavily and quickly after stimulus packages are withdrawn. Also, if recovery in the US stalls and they too go into a double-dip, will the repercussions reach Europe? I think US unemployment stands and something 16% or something. Is what I've said right?
Link to this page: http://socialistparty.org.uk/issue/635/10100
From The Socialist newspaper, 18 August 2010
Forecasts of fragile economic growth
The fragility of Britain's economic growth has been confirmed by various reports and comments from bankers and economists over the last week. The Bank of England, on 11 August, slashed its growth forecast for this year and raised its estimate of inflation. Its governor, Mervyn King, desperately trying to be upbeat, spoke of a "choppy recovery" and several years of sluggish growth. He may yet turn to even more quantitative easing, to try to 'recover' the recovery.
The predictions of The Socialist are unfortunately being borne out; that we are entering a lengthy period of at best, little growth, high unemployment and workers' living standards being held down. House prices are again falling, leading more house owners into negative equity. Basic food prices are shooting up, while pay levels are growing by much less than inflation, making it increasingly difficult for people to get by.
Alongside this, the impact of the government's cuts is only just beginning to be felt; there is a much worse impact to come. A third of bosses are expecting to cut jobs this autumn according to research by the Chartered Institute of Personnel and Development. This is across both the public and private sectors, with Local Authority bosses going the furthest - 63% of them are planning lay-offs.
The few glimmers of hope in recent reports on the economy come with gloomy caveats. There was an increase in the number of people in work in the quarter to the end of June but much of it was for part-time work only. The UK economy grew by 1.1% in the same quarter but much of that could be due to restocking of goods rather than indicating sustainable growth.
In fact the danger of a double dip recession continues to exist, with its possibility being increased by the savage cuts programme of the Tory/Liberal coalition government. The public spending cuts are starting to bite heavily into the private sector as well as the public sector, as many private companies depend on public sector contracts. This will hinder the prospects for economic growth, as will cutting people's spending power through job losses, reduced working hours, tax rises and low pay.
Will the economy be rescued by exports, which 'surged' in the second quarter, helped by the reduced value of the pound? This pick-up is likely to be short-lived, not least because the largest taker of those exports was the US, which is again descending into economic troubles.
The US Federal Reserve 'downgraded' its outlook for the economy last week, saying that household spending is "constrained by high unemployment, modest income growth, lower housing wealth and tight credit". This is after US president Obama's $787 billion stimulus package in the economy has been virtually used up and the Federal Reserve has put in $1.2 trillion worth of quantitative easing, a programme now being continued in an attempt to sustain liquidity. Lowering interest rates further is not an option, as they are already near zero.
Fears in the US
For the US capitalists, a number of fears remain; of renewed recession, of deflation, of a run from the dollar by America's foreign creditors - especially China - and of the spread of the US's current problems around the world.
The eurozone had a 1% rise in GDP in the second quarter, equivalent to a substantial 4% on an annualised basis. The German economy was responsible for over half of that growth - it grew 2.2%, its best quarterly rate since Germany's unification. However, the factors fuelling that growth seem unlikely to last, such as the relatively low level of the euro and a pick-up in markets for German goods internationally.
Also, a major crisis element for the eurozone is the big divergence between its countries. The economies of Italy, Spain and Portugal are barely growing at all and Greece is still in recession. The major cuts programmes in these countries will hinder or even prevent growth, as the cuts can do in Britain. Undoubtedly fears about sovereign debt defaults and the very survival of the eurozone are going to resurface.
So the millions of workers in Britain and beyond whose living standards are being crushed down by job losses and other cuts cannot look to a prospect of strong economic growth returning and creating millions of new jobs to come to their rescue. Yet at the same time, the bankers are raking in huge profits again and many other large private sector companies are also reporting substantial gains. Much of this is driven by cost cutting rather than strong sales, but it indicates that the rich are still doing very well for themselves, while ordinary people suffer on all fronts.
Anger among working class people will only grow in this situation, with ever-increasing pressure directed at the trade union leaders to use the potential might of the trade union movement to challenge it.Also (original link, http://www.guardian.co.uk/business/2010/aug/04/double-dip-recession-fears-economy): (http://www.guardian.co.uk/business/2010/aug/04/double-dip-recession-fears-economy%29:)
Double dip recession fears as service sector growth stalls
Stalled growth blamed on cancelled government contracts amid signs consumer spending is cooling off
The threat of a double-dip recession intensified today after it emerged that Britain's powerhouse services sector saw its growth stall last month, jeopardising hopes of a sustained recovery. As the Bank of England prepared to announce its latest decision on interest rates tomorrow, a survey of the sector that makes up the bulk of Britain's economic output showed that its growth slipped to its slowest since it emerged from recession a year ago.
Many of the companies surveyed said cancelled public-sector contracts were beginning to hurt their businesses, forcing them to cut jobs and dealing a blow to chancellor George Osborne's hopes of reviving the private sector by reducing public spending. The gloom was compounded by warnings from leading retailers that consumer spending is cooling off after a strong start to the year amid uncertainty about the economic outlook.
Labour today continued to challenge the wisdom of cutting the deficit so hard so soon, in contrast with its own plans. Ed Balls, the shadow education secretary, said: "These warnings show why it is so risky for the government to be cutting public sector contracts now when the recovery in Britain is so fragile and people around the world are worried about a double-dip recession. David Cameron is misguided and wrong to say the most urgent priority for Britain is to slash the deficit. The most urgent priority should be to secure Britain's economic recovery by boosting jobs and growth."
The reports will be a powerful weapon for doves on the Bank's monetary policy committee, who will argue that raising interest rates from their current historic low – which more hawkish members believe is necessary to combat inflation – will risk strangling the recovery in the second half of the year. The bank's governor, Mervyn King, met David Cameron today. He was likely to have emphasised to the prime minister his publicly expressed belief that rates will have to stay low because the recovery is still fragile. They also discussed the need to encourage more bank lending to help the recovery.
But casting a shadow over their meeting were the figures showing that growth in the service sector, which spans businesses from insurance to hotels and restaurants, fell more than expected to a 13-month low in July, according to the Markit/CIPS UK services purchasing managers' index. "This has hugely increased the risks of a double-dip recession, perhaps even by the end of the year," said Chris Williamson, chief economist at survey compiler Markit.
The companies surveyed – which account for about 40% of the economy – were only slightly more optimistic than in June, when Osborne's austerity budget hammered their hopes of a swift recovery. Reflecting dwindling confidence and a slowdown in order book growth, they cut staff, casting further doubt over the private sector's ability to provide jobs as government departments are shrunk.
"This survey is representative of the type of trends we are likely to see over the next couple of years – a long and slow grind towards recovery, with public sector cutbacks bearing down on demand," warned Andrew Goodwin, senior economic adviser to the Ernst & Young Item Club thinktank. "Given the impending squeeze on the public sector, the onus is on the private sector to create new jobs. The service sector has been central to job creation over the past decade, so these results highlight the risk of further increases in unemployment as the public-sector cuts begin to bite."
The darkening picture in the services sector follows similar reports this week on both manufacturing and construction and sent the pound lower as traders fretted over the fragile nature of the UK's economic recovery. Accompanying complaints from retailers such as high street chains Next and Carpetright that consumer spending is flagging bolstered economists' views that a surprise jump in second-quarter GDP was probably a blip and likely to be followed by subdued growth, especially once the government's autumn spending review spells out the full scale of the fiscal squeeze. Ministers remain confident that the public is still with them on the need to cut the deficit and believe growth will continue through until 2011. Cameron will tomorrow reiterate the necessity of tackling what he regards as Britain's uniquely high deficit at another "PM direct" session.
Shadow ministers will not predict a double dip, but instead highlight the risk of it happening. Most forecast a long, slow recovery, such as in Japan, in which joblessness remains high. Business groups seized on the news of mounting economic headwinds to urge the Bank to keep interest rates steady today and for many more months.
"Given the risks of an economic setback it is far too early to consider raising rates," said David Kern, chief economist at the British Chambers of Commerce. "Any serious consideration of raising interest rates should be off the table until the second quarter of 2011 at the earliest."
Even though inflation is above the Bank's government-set target, City economists unanimously expect rates to be held tomorrow. King has already flagged the balancing act policymakers face between price pressures and fragile growth at home and abroad, hinting rates will remain low for the rest of the year. He will have a chance to outline the Bank's latest thinking in next week's quarterly inflation report.
Link to this page: http://socialistparty.org.uk/issue/635/10100
From The Socialist newspaper, 18 August 2010
Forecasts of fragile economic growth
The fragility of Britain's economic growth has been confirmed by various reports and comments from bankers and economists over the last week. The Bank of England, on 11 August, slashed its growth forecast for this year and raised its estimate of inflation. Its governor, Mervyn King, desperately trying to be upbeat, spoke of a "choppy recovery" and several years of sluggish growth. He may yet turn to even more quantitative easing, to try to 'recover' the recovery.
The predictions of The Socialist are unfortunately being borne out; that we are entering a lengthy period of at best, little growth, high unemployment and workers' living standards being held down. House prices are again falling, leading more house owners into negative equity. Basic food prices are shooting up, while pay levels are growing by much less than inflation, making it increasingly difficult for people to get by.
Alongside this, the impact of the government's cuts is only just beginning to be felt; there is a much worse impact to come. A third of bosses are expecting to cut jobs this autumn according to research by the Chartered Institute of Personnel and Development. This is across both the public and private sectors, with Local Authority bosses going the furthest - 63% of them are planning lay-offs.
The few glimmers of hope in recent reports on the economy come with gloomy caveats. There was an increase in the number of people in work in the quarter to the end of June but much of it was for part-time work only. The UK economy grew by 1.1% in the same quarter but much of that could be due to restocking of goods rather than indicating sustainable growth.
In fact the danger of a double dip recession continues to exist, with its possibility being increased by the savage cuts programme of the Tory/Liberal coalition government. The public spending cuts are starting to bite heavily into the private sector as well as the public sector, as many private companies depend on public sector contracts. This will hinder the prospects for economic growth, as will cutting people's spending power through job losses, reduced working hours, tax rises and low pay.
Will the economy be rescued by exports, which 'surged' in the second quarter, helped by the reduced value of the pound? This pick-up is likely to be short-lived, not least because the largest taker of those exports was the US, which is again descending into economic troubles.
The US Federal Reserve 'downgraded' its outlook for the economy last week, saying that household spending is "constrained by high unemployment, modest income growth, lower housing wealth and tight credit". This is after US president Obama's $787 billion stimulus package in the economy has been virtually used up and the Federal Reserve has put in $1.2 trillion worth of quantitative easing, a programme now being continued in an attempt to sustain liquidity. Lowering interest rates further is not an option, as they are already near zero.
Fears in the US
For the US capitalists, a number of fears remain; of renewed recession, of deflation, of a run from the dollar by America's foreign creditors - especially China - and of the spread of the US's current problems around the world.
The eurozone had a 1% rise in GDP in the second quarter, equivalent to a substantial 4% on an annualised basis. The German economy was responsible for over half of that growth - it grew 2.2%, its best quarterly rate since Germany's unification. However, the factors fuelling that growth seem unlikely to last, such as the relatively low level of the euro and a pick-up in markets for German goods internationally.
Also, a major crisis element for the eurozone is the big divergence between its countries. The economies of Italy, Spain and Portugal are barely growing at all and Greece is still in recession. The major cuts programmes in these countries will hinder or even prevent growth, as the cuts can do in Britain. Undoubtedly fears about sovereign debt defaults and the very survival of the eurozone are going to resurface.
So the millions of workers in Britain and beyond whose living standards are being crushed down by job losses and other cuts cannot look to a prospect of strong economic growth returning and creating millions of new jobs to come to their rescue. Yet at the same time, the bankers are raking in huge profits again and many other large private sector companies are also reporting substantial gains. Much of this is driven by cost cutting rather than strong sales, but it indicates that the rich are still doing very well for themselves, while ordinary people suffer on all fronts.
Anger among working class people will only grow in this situation, with ever-increasing pressure directed at the trade union leaders to use the potential might of the trade union movement to challenge it.Also (original link, http://www.guardian.co.uk/business/2010/aug/04/double-dip-recession-fears-economy): (http://www.guardian.co.uk/business/2010/aug/04/double-dip-recession-fears-economy%29:)
Double dip recession fears as service sector growth stalls
Stalled growth blamed on cancelled government contracts amid signs consumer spending is cooling off
The threat of a double-dip recession intensified today after it emerged that Britain's powerhouse services sector saw its growth stall last month, jeopardising hopes of a sustained recovery. As the Bank of England prepared to announce its latest decision on interest rates tomorrow, a survey of the sector that makes up the bulk of Britain's economic output showed that its growth slipped to its slowest since it emerged from recession a year ago.
Many of the companies surveyed said cancelled public-sector contracts were beginning to hurt their businesses, forcing them to cut jobs and dealing a blow to chancellor George Osborne's hopes of reviving the private sector by reducing public spending. The gloom was compounded by warnings from leading retailers that consumer spending is cooling off after a strong start to the year amid uncertainty about the economic outlook.
Labour today continued to challenge the wisdom of cutting the deficit so hard so soon, in contrast with its own plans. Ed Balls, the shadow education secretary, said: "These warnings show why it is so risky for the government to be cutting public sector contracts now when the recovery in Britain is so fragile and people around the world are worried about a double-dip recession. David Cameron is misguided and wrong to say the most urgent priority for Britain is to slash the deficit. The most urgent priority should be to secure Britain's economic recovery by boosting jobs and growth."
The reports will be a powerful weapon for doves on the Bank's monetary policy committee, who will argue that raising interest rates from their current historic low – which more hawkish members believe is necessary to combat inflation – will risk strangling the recovery in the second half of the year. The bank's governor, Mervyn King, met David Cameron today. He was likely to have emphasised to the prime minister his publicly expressed belief that rates will have to stay low because the recovery is still fragile. They also discussed the need to encourage more bank lending to help the recovery.
But casting a shadow over their meeting were the figures showing that growth in the service sector, which spans businesses from insurance to hotels and restaurants, fell more than expected to a 13-month low in July, according to the Markit/CIPS UK services purchasing managers' index. "This has hugely increased the risks of a double-dip recession, perhaps even by the end of the year," said Chris Williamson, chief economist at survey compiler Markit.
The companies surveyed – which account for about 40% of the economy – were only slightly more optimistic than in June, when Osborne's austerity budget hammered their hopes of a swift recovery. Reflecting dwindling confidence and a slowdown in order book growth, they cut staff, casting further doubt over the private sector's ability to provide jobs as government departments are shrunk.
"This survey is representative of the type of trends we are likely to see over the next couple of years – a long and slow grind towards recovery, with public sector cutbacks bearing down on demand," warned Andrew Goodwin, senior economic adviser to the Ernst & Young Item Club thinktank. "Given the impending squeeze on the public sector, the onus is on the private sector to create new jobs. The service sector has been central to job creation over the past decade, so these results highlight the risk of further increases in unemployment as the public-sector cuts begin to bite."
The darkening picture in the services sector follows similar reports this week on both manufacturing and construction and sent the pound lower as traders fretted over the fragile nature of the UK's economic recovery. Accompanying complaints from retailers such as high street chains Next and Carpetright that consumer spending is flagging bolstered economists' views that a surprise jump in second-quarter GDP was probably a blip and likely to be followed by subdued growth, especially once the government's autumn spending review spells out the full scale of the fiscal squeeze. Ministers remain confident that the public is still with them on the need to cut the deficit and believe growth will continue through until 2011. Cameron will tomorrow reiterate the necessity of tackling what he regards as Britain's uniquely high deficit at another "PM direct" session.
Shadow ministers will not predict a double dip, but instead highlight the risk of it happening. Most forecast a long, slow recovery, such as in Japan, in which joblessness remains high. Business groups seized on the news of mounting economic headwinds to urge the Bank to keep interest rates steady today and for many more months.
"Given the risks of an economic setback it is far too early to consider raising rates," said David Kern, chief economist at the British Chambers of Commerce. "Any serious consideration of raising interest rates should be off the table until the second quarter of 2011 at the earliest."
Even though inflation is above the Bank's government-set target, City economists unanimously expect rates to be held tomorrow. King has already flagged the balancing act policymakers face between price pressures and fragile growth at home and abroad, hinting rates will remain low for the rest of the year. He will have a chance to outline the Bank's latest thinking in next week's quarterly inflation report.