Reuters blog archive
By Ian Campbell
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
Fly the flag. The headlines will be about the solid milestone. The UK finally replanted its flag on its 2008 GDP growth peak, three years after Germany and the United States reclaimed theirs and after a mere five years of ultra-low interest rates. But the landscape – the details of the second-quarter GDP – has its uncomfortably rocky side.
The Bank of England’s Monetary Policy Committee will see some grounds for concern. The 0.8 percent growth from the first quarter was generated almost entirely by the dominant services sector, which sprinted up by 1 percent. The rate of growth of industrial production slipped from 0.7 percent in the first quarter to 0.4 percent - equivalent to a meagre annualised rate of just 1.6 percent. Construction output contracted by 0.5 percent, bad news in a country needing houses.
The UK’s ascent, as in the past, is a straggling one, with services showing signs of leaving industry and manufacturing lagging behind. The UK’s close-to-record external current account deficit of over 4 percent of GDP is more evidence of that. Weak international competitiveness still looks like a big British growth-inhibiting problem, not helped by the fast recent rise in the pound.
Business inventories were run down to nearly nothing in the first quarter, and were set for a rebound. There also is no sign that consumer spending is about to veer off its recovery path, especially with the job market gradually improving. All of that is likely to underpin better economic growth.
For a euro zone economy that is broadening, but still relying heavily on Germany for growth, as well as inflation that is dangerously low and well below target, that may add another line to the European Central Bank's worry sheet.
from The Great Debate:
The economic debate is now sharply focused on the issue of income inequality. That may not be the debate Democrats want to have, however. It's negative and divisive. Democrats would be better off talking about growth -- a hopeful and unifying agenda.
Democrats believe income inequality is a populist cause. But it may be less of a populist issue than an issue promoted by the cultural elite: well-educated professionals who are economically comfortable but not rich. There’s new evidence that ordinary voters care more about growth.
from Lawrence Summers:
The British economy has experienced the most rapid growth in the G7 over the last few months. It increased at an annual rate of more than 3 percent in the last quarter -- even as the U.S. economy barely grew, continental Europe remained in the doldrums and Japan struggled to maintain momentum in the face of a major new valued added tax increase.
Many have seized on Britain’s strong performance as vindication of the austerity policy that Britain has followed since 2010, and evidence against the secular stagnation idea that lack of demand is a medium-term constraint on growth in the industrial world.
The two forecasting teams that came closest to predicting the U.S. economy would nearly stall in the first quarter expect other key economic data due this week to be strong.
This gives some support to the view -- which some say is more hope than a forecast -- that a snap-back is already taking place as the Federal Reserve and most other analysts expect.
from Global Investing:
A recent report highlights the importance of economic development for India and indeed for all developing countries. It also shows why we should worry about the slow pace of reform in India and how that has hit growth rates.
Bank of America/Merrill Lynch analysts have picked up a report from the Institute for Conflict Management, a New Delhi-based think tank, showing that terrorism-linked deaths in India last year were 6 times lower than in 2001, a development they ascribe to the rapid growth the country enjoyed in this period. The graphic below shows the link:
French economic growth unexpectedly picked up to 0.3 percent in the final three months of last year, welcome news and a rare positive shock for some particularly gloomy forecasters who were looking for shrinkage or no growth at all.
But the unexpected bounce may be partly for the wrong reason: government spending.
from Reihan Salam:
On Thursday, House Speaker John Boehner told members of the press that though immigration is “an important issue in our country” (thanks for that, John), it will be difficult to move immigration legislation this year. According to Boehner, the chief stumbling block is that Republican lawmakers simply don’t trust the Obama administration to implement a new immigration law in an aboveboard way. It is also true, however, that conservatives in the House doubt Boehner’s instincts on immigration, and worry that following his lead will do them more political harm than good. I tend to think that the skeptics are right, and that the GOP ought to put immigration reform on the back-burner.
But just because we can’t agree on immigration reform doesn’t mean that we can’t agree on emigration reform, a subject I’m guessing you’ve never heard about. Believe it or not, the question of how easy we make it for Americans to live and work outside of the United States will be almost as important in the decades to come as the question of who we should let live and work in the United States is now.
U.S. businesses have never had it so good.
Corporate cash piles have never been bigger, either in dollar terms or as a share of the economy.
The labor market, meanwhile, is still millions of jobs short of where it was before the global financial crisis first erupted over six years ago.