- Bernard Murphy is investigations editor at Clinica World Medical Technology News. The opinions expressed are his own -

Bernard Murphy has been following the spread of avian and swine flu across the globe and is an expert in medical diagnostics and regulation. He explains how the threat of bird flu is still present and discusses the latest developments in diagnosing and combating the viruses and the threat they pose to the global economy.

- David Andrews is director of David Andrews Media, a financial public relations consultancy with high profile fund management and financial services clients based in the UK, Ireland, Cayman Islands, Cape Verde, Beijing, Europe and the U.S. The opinions expressed are his own. -

David is a former financial journalist best known for his weekly Daily Express and Conde Nast ‘Money Matters’ columns.
Few will be lifting a glass to toast the first anniversary of the collapse of investment bank Lehman Brothers a year ago this week. With billions of dollars under management and thought to be invincible, the private bank was generally regarded as a potential gateway to the riches of Croessus for the ordained Masters of the Universe who prowled its Jackson Pollock-lined corridors.

But when the bank started to drown in the treacherous quagmire of its collateralized debt obligations (CDOs) - a type of structured asset-backed security whose value and payments are derived from a portfolio of fixed-income underlying assets – America’s Federal Reserve elected not to send in the cavalry.

The virtual overnight collapse of Lehman Brothers in September 2008 was the catalyst which brought the world economy to its knees with breathtaking rapidity. The bank was so huge, a massive juggernaut reversing and elbowing its way in so many different markets that when the U.S. government allowed it to go to the wall, it caused a convulsion among its many counter-parties, which in turn caused global credit markets to seize up. “Normal” banking activity virtually ground to a halt.

We were all in dreadful trouble.

Some commentators, notably Warren Buffett and the International Monetary Fund’s former chief economist Raghuram Rajan, sounded many alarms bells about the runaway train that was the growing appetite for CDOs and other highly complex, derivatives-based tools which delivered fabulous wealth to a few but subliminally spread a cancerous, critical risk throughout the global credit system and effectively precipitated the crunch that led to a near collapse in the UK and U.S. banking systems and onto worldwide recession.

The chill winds of destabilisation were already whipping through the U.S. economy however well in advance of the Lehman collapse, as pigeons came home to roost in the wake of the extraordinary saga of so-called sub-prime mortgage misselling in the States.

As more and more people defaulted on their home loans – typically because their interest rate shot up after an initial honeymoon period, securities backed with subprime mortgages, widely held by financial firms, lost most of their value. The result was a precipitous collapse in the capital of many banks and the tightening credit around the world which signalled the beginning of the recession which has plagued us for the best part of the last 12 months.

Back in early 2007, as the rumblings of problems in the U.S. property market were beginning to be felt, I wrote (for a financial publication) “let’s just hope that the credit squeeze in the States which has caused so many problems for world markets is not contagious. Banks over here need to take note. Lending lots of money to poor people who have no hope of being able to repay at inflated rates further down the line is not good economic sense. It is sheer, short term greed, short sighted and likely to sink the lot of us if it continues.”

Looking back at that sentiment now, it is clear that the “banks over here” did not take note. They very nearly took us all down with them.

It has been a long, long year….but we do, finally, appear to be emerging – albeit tentatively – blinking into a new post recessionary dawn.

While unemployment is still a major concern, both domestically and in the U.S., where it has climbed to around 9 per cent, markets are starting to recover and as I write the FTSE 100 index of blue-chip companies has rallied more than 40 percent since slumping to its low for the year in early March.

The move to 5,000 - a level last touched on October 3 - comes as a new survey from Nationwide Building Society showed that British consumers are feeling more confident than at any point in the past 12 months.

So, consumer confidence up, spending up, export sales up, property sales rising, more mortgage business being written….things are looking promising.

In an upbeat speech the other week, the cautious, invariably dour U.S. Federal Reserve Chairman Ben Bernanke’s reckoned that economic activity in the U.S. and around the world appeared to be “leveling out” and that “the prospects for a return to growth in the near term appear good”.

Let’s hope he is right.

But – and as a natural pessimist I would say this - who knows what is around the corner?  Didn’t that wily old sage Mr Greenspan say just the other day that we will reel once again from a global downturn at some point in the future, as it is part of the cyclical nature of advanced capitalism?

As another American who once ducked and dived on the world stage, Donald Rumsfield, might have put it, “as we know, there are known knowns. There are things we know we know. We also know there are known unknowns. That is to say, we know there are some things we do not know. But there are also unknown unknowns - the ones we don’t know we don’t know…”

You get my drift.

Could the European Union be among the big losers of the global financial crisis?

Despite signs that recession in Europe may be bottoming out, the 27-nation bloc risks emerging from the turmoil with its economic growth potential stunted, its public finances shackled by mountains of debt, and its international influence weakened.

That is the backdrop to Jose Manuel Barroso's campaign for a second term as president of the executive European Commission.  In a manifesto sent to EU lawmakers last week, he warns that unless Europeans shape up to the challenge together, "Europe will become irrelevant".

The conservative former Portuguese prime minister is  seeking a confirmation vote in the European Parliament this month, so a degree of dramatisation is to be expected. But there is no hiding the setback the crisis has dealt to European integration. Barroso has rightly put economic recovery at the top of his agenda, but he lacks powerful levers to achieve his goals at a time when the knee-jerk response in Europe has often been to revert to national economic solutions.

The recent crisis showed that there remains a strong short-term temptation to roll back the single market when times are hard, he acknowledges in the 41-page document.

Barroso is too much of a politician to name names, but he was clearly referring to the way Britain pressured state-rescued banks to lend at home and France and Germany sought to protect domestic jobs when aiding car manufacturers. Those governments deny their moves are protectionist and cite their duty to spend taxpayers' money in the national interest. But such measures pose a threat to the principles of free movement of capital and labour and fair competition.

Barroso vows to be "an implacable defender" of the EU's single market and its competition and state aid rules -- the foundation stone of European prosperity. But he does not say how he can force governments that have rescued stricken banks to restructure and dispose of them in ways that avoid distorting the level playing field for business.

Critics say the Commission president was too deferential to the major European powers in his first five-year term. Whether he will show more independence once he no longer needs their
support for his re-election remains to be seen.

His programme calls for greater economic policy coordination especially in the euro zone, and more surveillance of national budgets by Brussels, but he does not say how the Commission can persuade big member states to accept more EU supervision. He acknowledges that some new member states in central and eastern Europe have suffered a deeper recession and drifted away from economic convergence with western Europe. But he doesn't say how this can be fixed or offer a plan for those countries to join the euro zone in the near future.

Barroso rightly says that Europe will need to find new sources of growth with its post-crisis output potential crimped by stricter financial regulation, higher taxes, unemployment and demographic decline. The low-carbon "green economy", building new broadband and energy super-networks, and developing personal services for an ageing population all offer potential wellsprings of growth.

But while he advocates a "root and branch reform" of the EU budget to shift resources to these new priorities, Barroso does not say how he would stop farm subsidies gobbling up 40 percent
of community spending. The common budget is anyway likely to stay pegged at 1 percent of EU gross domestic product -- a fraction of national expenditure.

While the Europeans will struggle to redynamize a stagnant economy, they also face a challenge in shaping a new global order.

The EU prides itself on being a model of rules-based multinational governance, but its inability to agree on joint representation in international fora such as the G20 weakens its influence with emerging powers such as China and India, as well as with the United States. Barroso says the EU must speak with one voice at the world's economic top table, but he has no recipe for ending the current cacophony of eight European delegations in the G20.

As the Bruegel economic think-tank said in a perceptive memo to the next Commission president, the EU needs to reform its economic governance and centralise more policy in some
fields, but there is no appetite for such reforms in the crisis.

On healthcare, the White House is struggling with a political riptide that threatens to drag it into deep water.

Americans, as they contemplate change, have suffered a weakness of nerve. The main reason is that nearly two thirds of Americans are apparently happy with their healthcare coverage, for all its deficiencies. Repeated reassurances from President Obama that those who like the existing set-up will not be forced to change, have had little effect.

A change of tactics may be in order. The administration must do a better job of underlining the glaring defects of the existing system. The genius of the U.S. healthcare is in providing the illusion of value and security. For their own sake, Americans must be encouraged to set aside jingoistic claims about having the best care system in the world and look more honestly at its short-comings.

Let's start with value. Most Americans are blissfully unaware that their healthcare system provides appallingly little value for their money. This is because when it comes to costs, they see only the tip of the iceberg. While companies typically pay about three-quarters of an employee's family premium -- on average $12,680 a year -- individuals ultimately bear the burden. In a free market, companies do not hand over to their workers more than they absolutely have to. Money spent on healthcare is carved out of take-home pay or other benefits.

"We pay for healthcare in considerably lower salaries," Uwe Reinhardt, a Princeton University economics professor, said in a telephone interview. "The system seduces people into thinking care is pretty cheap. We are kidding ourselves if we think that the shareholder pays."

One measure of this financial sacrifice is that employer premiums are now 17 percent of median household income -- up from 15 percent in 2003. From 1999 to 2008, family health insurance premiums rose by 119 percent.

With healthcare costs rising fast, it is small wonder that middle-class Americans have failed to wring real pay increases out of employers. The drag on pay will increase further, according to research by the Commonwealth Fund. The foundation estimates that without reform, the cost of premiums could double again by 2020 -- gobbling up still more take home pay.

The second big healthcare mirage is security. If the current downturn has demonstrated one thing, it is the fragility of an employer-based healthcare system. Lose your job -- as more than 6.5 million have in this downturn -- and your insurance can disappear with it. (COBRA provides only a temporary patch and can be expensive.)

It also means that you can lose your coverage if you get very sick. "Get so sick you can't work, you can also forfeit coverage," Gary Caxton, an analyst with Kaiser Family Foundation, said in an interview. The very idea of insurance is to protect you during a crisis. Instead Americans are getting insurance that works only when the sun shines. "The American system is least good at the worst times," as David Cutler, a Harvard healthcare economist, puts it.

The final illusion is that the healthcare system can be relied on in the longer term. In reality it is taking on water fast. This is most obvious in small companies. Less than half of companies with fewer than 10 employees now offer insurance, down from 57 percent in 2000, according to the Kaiser Family Foundation. For all companies, the percentage is down from 69 percent to 63 over the past 8 years. Companies are also starting to unload a growing share of costs onto employees anyway.

Deductibles for most employees have more than trebled since 2000 -- a trend that looks almost certain to continue. This is all before you take into account the prodigious quantity of tax dollars soaked up by healthcare.

As the private sector has faltered, the state has been forced to step in. The result is that America is stumbling toward nationalization.

A recent Gallup poll found the share of Americans dependent on the state for healthcare -- including Medicare, Medicaid and VA benefits -- had climbed to 29 percent from 26.5 since the start of 2008. If you include the 17 percent of U.S. workers employed by the state, then closer to 40 percent are covered by the government.

Americans need to take a good look at their existing healthcare system, warts and all. It is the administration's job to hold up a mirror to U.S. healthcare. If they fail to do so, the U.S. will pass up an opportunity to build a system that's fair, sustainable and offers better value.

- John Ross is visiting professor at Shanghai’s Jiao Tong University where he writes a blog on globalisation. The views expressed are his own. -

The success of China’s economic stimulus package has attracted increasing attention in Britain and internationally for two reasons. The first is simply its importance for the world economy. Second whether there are general lessons to be learned.

The impact of China’s economic programme can be seen in that it is likely the whole of world economic growth this year in net terms will be accounted for by China.

The sceptics on China’s stimulus package have been disproved by the facts. China’s GDP growth this year will be eight percent or slightly above. China’s GDP grew by 7.9 percent year-on-year in the second quarter and was accelerating –- the best private sector estimates are China’s economy grew at an annualised 13-15 percent in the second quarter. Urban investment increased 34 percent and as producer prices were dropping the real increase was probably around 40 percent. Retail sales increased 15 percent.

This is a stellar performance in conditions where most major world economies will shrink this year. Compared to these results talk of possible “green shoots” in other economies relates to minor improvements.

China’s economy is not large enough that its growth is able by itself to turn round the world economy. But it is sufficient to having a stabilising effect in East Asia with beneficial knock on consequences. Those wanting further detail on the scale of contribution of China’s growth to the world economy should read Professor Danny Quah, of the London School of Economics’, excellent recent paper on Asian growth.

But if the significance of the scale of the international impact of China’s economic performance is evident are there policy lessons which can be drawn by Britain?

Evidently the main features of China’s economic stimulus package cannot be copied by the UK. China’s economic growth is being powered by large investment programmes carried out by its state owned companies.

China’s emphasis on infrastructural investment can, and should, be copied in the UK in the limited areas of housing and transport. While overall UK investment has fallen by 15 percent, investment in housing has fallen by 30 percent and in transport equipment by 35 percent.  This is not a decline but a collapse in which direct intervention is required if permanent structural damage is to be avoided.

But in infrastructure as a whole the necessary structures simply do not exist in the UK to copy China’s success. This is unfortunate because, as anyone who visits Shanghai or Beijing knows, in many areas Britain’s city infrastructure now lags behind China’s but nothing can be done about it except in some defined fields.

There is one area, however, in which direct lessons can be drawn from China –- banking. The UK government is rightly desperately attempting to increase bank lending in order to counter the economic downturn. As is also well known it is having little success in these efforts despite hundreds of billions of taxpayers money put into the UK banking system.

In China this problem does not exist. The state owned banks can be, and are, instructed to increase lending. The second part of China’s stimulus package, after the investment programmes, is therefore a rapid increase in bank lending — new loans in the first half of 2009 were $1.1 trillion and M2 to June rose by 28.5 percent providing an extremely strong counter-recessionary impulse.

Vince Cable, the Liberal Democrat’s Treasury spokesman, has rightly repeatedly pointed out the absurdity of the current situation with UK banking. All UK banks today exist only due to taxpayer subsidy — although Barclays and HSBC did not receive taxpayers equity, they would not be profitable operating without the taxpayer funded guarantee and economic stimulus schemes.

Yet despite UK banks existing only due to the taxpayer, Chancellor Alistair Darling is reduced to ineffectually pleading with them to increase lending. No such problem exists in China.  A side effect is that China now has the most valuable banks in the world by market capitalisation –- but banks simultaneously doing the key job of expanding lending. In China, private and public interest are properly aligned within the banking system.

For the reasons outlined Britain cannot copy all of China’s stimulus measures even if it wished. But on infrastructure and banking it should learn to “speak Chinese”.

- Peter Dixon is a guest columnist, the views expressed are his own. He is global financial economist at Commerzbank -

In the course of this week, we have received a mixed bag of first half results from all the big UK banks. On balance, earnings were slightly ahead of expectations, even for those banks which still registered big losses.

The broad conclusion which we can draw is that retail operations have endured a tough six months, thanks to rising default rates and higher loss provisions, but those banks with significant trading operations have been able to offset these problems due to a major improvement in global market conditions. Moreover, the results have reawakened public interest in the bonus culture and have raised many questions about where we go from  here.

The question of bonuses has become highly emotive in recent months. The standard argument used by opponents is that it is immoral for banks which have been propped up by public money to reward those who gamble in the casino of international finance – particularly since it is precisely such behaviour which brought the banks to their knees in the first place. Banks counter this criticism by arguing that good fee earners generate huge income for their company and should be rewarded commensurately.

But even if we accept this view, there is an issue of how big a share of earnings should be paid to the fee earner. The compensation model used in the finance sector today is based upon that of the old partnership system, when individuals’ wealth was at stake and they were paid for taking genuine risks. Most fee earners today are taking risks with shareholders money. From an economic perspective, shareholders should receive the bulk of the revenue in the form of dividends whilst bankers compensation should be treated as little other than a brokerage fee (unsurprisingly, that is not a popular view on the trading floor).

Whilst the structure of banking sector compensation is a major talking point, it pales into insignificance against the question of how UK banks will pay back the money pumped in by the government. Unfortunately, those banks which have accepted public funds are those which are primarily focused on the domestic market, and which are in no position to generate big profits from their trading operations. Following the principle that there is nothing to be gained by throwing good money after bad, this suggests that banks will be circumspect in their lending activities for the foreseeable future – precisely not what the government desires. Moreover, profitability will be restored more quickly if banks maintain high interest rate margins, which is another activity not in the best economic interests of the public.

Clearly, the restoration of banking profitability will be a long haul. But what is an appropriate rate of return for banks? After all, a bank is merely an intermediary which brings together those with excess savings with those who wish to borrow. In theory, a bank should not be more profitable than the activities which it is financing, since otherwise there is no incentive to engage in enterprise, and we should instead invest in banks. Of course, this is a logical inconsistency for if there were no lending activities taking place, banks would not be able to generate profit.

But the point is made that on economic grounds, there ought to be a natural limit to bank profitability and there are a few economic reasons for paying bankers massive bonuses. A reduction in banking sector rewards ought to allow more talent to flow into other sectors engaged in more socially useful activities, thus generating higher social welfare. Contrary to what many people believe about economics, sometimes it really isn’t all about money.

- Steve Radley is Director of Policy at EEF, Britain’s manufacturers’ organisation. The views expressed are his own.

This week the index of manufacturing activity in the UK moved into growth territory for the first time in more than a year. While that does not necessarily mean that the recession is over, it does suggest that we should be thinking a bit more about what sort of recovery we are likely to see and how well placed the UK is to meet it.

A common assumption is that a UK recovery will be export-led, taking advantage of a cheaper pound and the large stimulus packages which are likely to lift overseas markets such as China and United States out of the global recession faster than in this country. Looking longer-term, shared global challenges such as security, ageing populations and slowing climate change and adapting to it will create major opportunities for UK companies, particularly in manufacturing.

This raises questions as to how well equipped we are to take advantage of these opportunities. On the positive side, UK manufacturing has become much competitive in recent years with productivity gains outstripping most of our major competitors. A greater focus on innovation, design, niche products and service offerings has helped UK firms shift away from competing on price terns with lower wage cost countries. At the same time, though, we have been slow to take advantage of growth opportunities. Other European countries have made faster inroads into rapidly expanding Asian markets, while nations such as Germany, Denmark and Spain have stolen a march on us in the onshore wind industry, despite the substantial advantages our physical geography provides us.

There are some important lessons from this for manufacturers themselves and some steps that they will need to take. Companies will need to be more ambitious in exploiting the opportunities from a world economy set to double in size in the next 20 years and to develop a long-term strategy to achieve this. They will need to increase their focus on investing in the areas where they can best add value, whether this is in new equipment, research and development, skills or more likely a combination of them. And they need to be much more vocal in selling themselves to the highly skilled people they need to work for them and the government that they need to support them.

The government has signalled that it will be a more active player in this area. This is welcome news for business. It is not looking for government subsidies, for it to be protectionist or seek to create national champions. What it wants is a clear framework from government on where it sees the UK economy going, what are the major opportunities for this country and what it will do to help business realise them. The “New Industry, New Jobs” report launched in April was a good start in this respect and since then we have had a plethora of announcements, among others on Digital Britain, a Low Carbon Industrial Strategy and Advanced Manufacturing.

This evidence of a more active approach is welcome but what business needs now is more clarity on how the government will be taking things forward. To send clear signals to companies considering making long-term investments here, the government needs to spell out the criteria for making its own strategic investments. It also needs to be convinced that the government will work with it to clear away the obstacles to making and capitalising on these investments, be they skills, planning concerns, regulation or licensing issues or weaknesses in the supply chains. Business also needs to hear more about how government will use its vast procurement budget to stimulate innovation, particularly in growing markets. It has talked for some time about doing this but delivering on it will not be easy, particularly at a time when a recession, a looming spending squeeze and a pending election might encourage civil servants to baton down the hatches.

Getting this right is not easy and it would be naïve to think that there is a blueprint from another country that we could simply import and follow slavishly. But it is now vital that the government now delivers on the bold promises that it has made.

By Eric Auchard

LONDON, July 24 (Reuters) - Investors have proved all too ready to interpret positive earnings trends from Intel, IBM and Apple as signs of economic recovery and to justify a continued rally in technology stocks.

Now they are taking the wrong lessons in reverse by reading disappointing results from Microsoft Corp as evidence that a nascent rebound in the economy has stalled.

By the same token, it's mistaken to read the best quarterly results in two-and-a-half years for Samsung Electronics, the world's biggest maker of memory chips, as any indicator of progress on the economic front.

Look past the headlines and you'll find factors specific to each of these companies that say little about any fresh demand for technology in this economy.

The truth is that technology companies have done a terrific job of cutting costs and preserving cash flow, even as revenue growth has continued to shrivel or turn negative. (See Reuters analysis).

But demand for new products and services remains scarce, except in isolated pockets. Apple and Blackberry-maker Research in Motion make must-have gadgets that resist economic penny-pinching.

Remember why investors put up with the volatility of technology stocks in the first place? Winners in the sector are famous for generating outsized growth for hot products or services independent of economic cycles.

Microsoft's fiscal year-end results reflect the dynamics of the company's own product cycles as much as the economy. The company reported its first-ever drop in annual sales of Windows software as overall revenue fell by 17 percent.

But the world's largest software maker is on the cusp of a major upturn in its business that is expected to follow the introduction of the next version of its operating system, Windows 7 in October. It's natural, then, that business and consumer buyers might pause until Windows 7 gives them new reason to buy PCs in 2010 and beyond.

Sure, the company blamed a poor macroeconomic climate. But Microsoft has been saying much the same thing for the past year, namely, that an "economic reset" to lower levels of growth is underway in the world.

Meanwhile, Samsung's quarterly results out Friday showed it benefiting from a recovery in memory chip pricing that is only indirectly related to underlying economic demand. Firming pricing in memories followed a two-year industry slump created by a glut of over production. Again, no signs of economic uptick here.

Samsung, which is also the world's second largest maker of mobile phones, is enjoying robust demand for these products thanks to clever designs. These are stealing market share from rival mid-priced phones. The gains are coming in spite of an expected 10 percent drop in global cell phone demand this year.

Furthermore, the positive results earlier this month from Intel and IBM said less about the economy than they did about the success of specific turnaround strategies the companies have been put in place over the years (See Intel column).

IBM has sharply raised its 2009 year earnings outlook as it has refocused on higher-margin software and services businesses instead of hardware. This success is a product of financial reengineering and cost-cutting, not improving demand. Note that IBM revenue is set to fall 9 percent in the course of 2009.

In general, second-quarter results have provided further evidence that technology demand is stabilizing, albeit at lower levels.

The danger for investors is reading too much into these reports. Half way through the year, there is little evidence of fresh corporate spending or new consumer demand for technology. Outside China, much of the activity has been restocking of depleted inventories. Economic recovery remains illusive.

-- At the time of publication Eric Auchard did not own any direct investments in securities mentioned in this article. He may be an owner indirectly as an investor in a fund. You can read some of Eric's recent columns here.--

(Editing by David Evans; Photo: Reuters/Rick Wilking)

- Marie Diron is senior economist at Oxford Economics. The opinions expressed are her own -

A swine flu pandemic would affect the economy via various channels involving supply and demand.

On the supply side, infection and death imply that employees would be unable to go to work. This is what most people think about when they think about swine flu’s economic costs.

But the demand channels are likely much more powerful. Fear of infection would keep people away from airports, train stations, restaurants, cinemas and shopping centres. This would imply cuts in travel and tourism and consumer spending.

In addition, uncertainty about the impact and duration of the pandemic would dampen investment, while financial markets would probably experience renewed tensions with spreads between policy and market interest rates rising again and share prices negatively affected.

To get a quantitative estimate of the impact, we need to make a few assumptions. First, based on the experience of previous pandemics and developments so far, we can assume that 30 percent of the world and UK populations would be infected and be unable to go to work for two weeks. We also assume a death rate of 0.4 percent.

Second, we look at the experience of the SARS outbreak in Asia in 2003 to calibrate the likely cuts in discretionary consumption and international travel. This episode showed significant reductions, of around 20 percent and 60 percent respectively. In the current environment of rising unemployment and needs of balance sheet repairs, households could cut discretionary consumption even more sharply.

Under these assumptions, the GDP loss during the six months of the pandemic would amount to around five percent in the UK. This means that GDP growth in 2010 would be at least as bad as in 2009.

However, and although once the pandemic is over the economic bounce back would likely be less sharp than post-SARS, chances are that, by 2011, GDP growth could be above our baseline forecast and the economic loss would be gradually recouped within around three to four years. CPI inflation would likely turn negative for a few months but would rise as pent-up demand is realised.

There is a risk that swine flu tips the UK and the world economy into deflation as the pandemic would hit at a time when businesses and banks are still reeling from the economic crisis.

Rather than catching up on postponed spending, households may raise savings for a longer time, while companies that are already fragile after the recession may succumb to this new shock.

We estimate that under such a scenario the UK and world economies would fall into deflation. UK CPI inflation would fall to around minus one percent throughout 2010-12 and UK GDP growth next year could be as low as minus seven-and-a-half percent. With the government budget deficit already at sky-high levels and the Bank of England’s interest rates pretty much at zero, there is little that public authorities could do to try to buffer the impact.

-Simon Chadwick is the Director of the Centre for the International Business of Sport at Coventry University, and runs the blog ‘Daily Sport Thought’ in which he addresses many of the important challenges currently facing sport. The opinions expressed are his own.-

I love sport, I have always loved sport, and I make my living researching, writing and talking about sport. As such, I do not need to be convinced about the social, cultural, psychological and health benefits associated with our engagement in sport. I also do not need any convincing about the economic benefits of sport, although some people will always and inevitably exclaim, “he would say that wouldn’t he!”

Well, it is not me it is actually the United Nations which states that sport may account for as much as 3 percent of global economic activity. It is the European Union that estimates sport to be worth 1.5 percent of its gross domestic product (GDP). And it is the British government that has recently acknowledged just how significant sport as an industry has become by commissioning research which will result in the development of robust measures for the contribution that sport makes to the British economy. Previous estimates already indicate that sport may generate as much as 2.5 percent of GDP, in which case this means it is an industry bigger than agriculture and not so far behind manufacturing.

Sport is, indeed, much more important than we realise or acknowledge. It is deeply ingrained in many of our psyches: for some people this dates back to our childhoods and is bound up in our social and geographic identities; for other people, sport allows us to indulge in vicarious achievement (related to the psychological phenomenon of BiRG-ing – Basking in Reflected Glory) and euphoric collective experiences.

The consumption of sport is thus not a rational economic activity, an observation that is particularly pertinent amidst these recessionary times. Whereas other industries continue to suffer the effects of the downturn, sport remains one of the more recession-resistant sectors, buoyed by the inherently unique features that differentiate sport, making it a safe-haven during difficult times.

Sport can be relied upon not to let people down, it provides value for money, not least because of its central proposition: the uncertainty of outcome – you never know what the result is going to be, something absent from virtually all other forms of consumption in our otherwise increasingly homogenised and standardised world. As such, people actively seek out sport and remain loyal to it, even during economically troubled times.

There is clear evidence already that sport has bucked recent recessionary trends; for instance, over the last year, Arsenal reported a profit of almost 37 million pounds; both the Rugby Football Union and the Premier League have announced new, high value, long-term televisions rights deals; Badminton England signed its most lucrative ever sponsorship deal; advertising revenues derived from slots during American Football’s Superbowl broke all records; and television viewing figures for the Champions League Final in Rome were up by 27 percent.

If one then factors in the specific economic impacts that sporting success can have, there are strong grounds for optimism that our love affair with sport may actually help lift us out of our current economic malaise. In the months immediately after last year’s Beijing Olympic Games, sales of bicycles reportedly increased by upwards of 20 percent; sales of sports bras were up by 27 percent; sales of swimming equipment may have increased by upwards of 36 percent; and sales of energy bars and sports drinks apparently increased by as much as 155 percent.

Moreover, a YouGov poll conducted prior to the 2006 FIFA World Cup in Germany indicated that almost half of all men and women felt that sporting success lifts their mood, helps them be more optimistic and increases their productivity.

So what are the prospects for this summer, and beyond into the autumn? It is a pity that there is no major football tournament due to take place, as previous research indicates a tangible link between football success and economic uplift. A Manchester United victory in the Champions League Final would have been helpful, as would an Andy Murray win at Wimbledon. We still have the Ashes ahead, the World Athletics Championship in Berlin, and Jenson Button leading the Formula 1 World Championship.

It may nevertheless be towards the end of the year before witnessing the real economic excitement. If the England football team can keep their nerve and qualify for next year’s FIFA World Cup in South Africa, then businesses from pubs and pizza-makers to television manufacturers and internet service providers will be gleefully rubbing their hands.

Perhaps that Anglicised Scot, Gordon Brown, may be the one who will rub his hands more than most? Sporting success over the next year could not only help to save the economy, it might also help him to save his job. Roll on that Croatia game in September, eh Gordy?