The Great Debate UK
By Kathleen Brooks. The opinions expressed are her own.
China is often berated for providing unreliable economic data. Behind every release there are some who believe officials in Beijing have been at work to manipulate the data for the government’s benefit. But is China alone in this and can we trust the data coming from other economies in the West?
The Office for National Statistics (ONS) has a fairly patchy record at providing accurate data on the UK economy. For example, the first reading of Q2 GDP for this year was -0.7%, this was then revised up to -0.4%. A 0.3% discrepancy in a $2.5 trillion economy is no small chunk of change. The ONS even revealed that the Q2 data was more difficult to calculate than usual due to the extra Jubilee bank holiday and that GDP could be overstating the weakness in the UK economy.
And it’s not just GDP; The UK labour market has left some of the top economic minds in the country bemused. Whereas the GDP data suggests the UK economy is in the first double dip recession for 30 years, the unemployment rate has fallen from 8.3% to 7.9% since the start of this year and the UK economy has been creating jobs at its fastest rate since 2010 (the peak of the recovery from the Great Recession). How can this be? The official data is telling us that the economy is contracting yet we are creating jobs.
Some people now believe the ONS could revise UK GDP over the coming years that could potentially erase the 2012 recession altogether. Whereas China is sometimes accused of overstating its economy, in typical British understated style we could be making things worse than they actually are. If the UK economy is not in as dire straits as the GDP data suggests then imagine all of the wasted investment opportunities in 2012. The ONS’s inaccuracy and inability to account for one extra bank holiday in a quarter could weigh on growth in the future, especially if foreign investment has been deterred by the headline economic statistics that negatively portray our economy as hobbled compared to other regions of the world.
The government’s latest plan to boost growth by relaxing planning permission rules has attracted a mixed reaction. In fairness, allowing homeowners who have detached houses to build an 8 metre long-extension is never going to get the UK economy out of the bolt hole it has found itself in. Likewise, the perceived U-turn on the plan to build another runway at Heathrow is unlikely to happen in time for Cameron and Osborne to take credit for the growth boost.
But all is not lost for the government. All it needs to do is to continue its policy of gently loosening the Treasury’s purse strings. “But we are going through a period of fiscal austerity,” I hear you cry. Indeed that is what the government wants us to think, but the economic data just doesn’t support that assertion. The latest GDP data reported that government spending was flat in the second quarter. That is down from the large 1.9% increase in the first quarter. However the UK’s fiscal consolidation effort looks fairly meagre when you consider that government spending has only fallen once in the last six quarters.
from Ian Bremmer:
By Ian Bremmer
The views expressed are his own.
One of the biggest changes we’ve seen in the world since the 2008 financial crisis can be summed up in one sentence: Security is no longer the primary driver of geopolitical developments; economics is. Think about this in terms of the United States and its shifting place as the superpower of the world. Since World War II, the U.S.’s highly developed Department of Defense has ensured the security of the country and indeed, much of the free world. The private sector was, well, the private sector. In a free market economy, companies manage their own affairs, perhaps with government regulation, but not with government direction. More than sixty years on, perhaps that’s why our military is the most technologically advanced in the world while our domestic economy fails to create enough jobs and opportunities for the U.S. population.
Contrast the U.S. and its free market economy with China’s system. For years now, that country has experienced double digit growth. Many observers would say that China’s embrace of capitalism since 1978, and especially since joining the World Trade Organization in 2001, has been responsible for its boom. They would be mostly wrong. In fact, a new study prepared for the U.S. government says it’s not capitalism that’s powering China, but state capitalism -- China’s massive, centrally directed industrial policy, where the government positions huge amounts of capital and labor in economic sectors it intends to nurture. The study, prepared by consultants Capital Trade for the U.S.-China Economic and Security Review Commission, reads in part:
By John Foley
The author is a Reuters Breakingviews columnist. The opinions expressed are his own
The Thaksins' surprise win in the Thailand elections already has investors' vote. As the opposition party of Yingluck Shinawatra -- sister of exiled former premier Thaksin Shinawatra -- took a surprise majority in elections on July 3, the baht strengthened, and the cost of insuring Thailand's debt against default fell some 20 percent. The local stock market benchmark index rose 4.1 percent. In truth, there is some way to go before Thailand attains enough stability to regain favour with global investors -- but it's a good start.
By Jamie Jemmeson
-Jamie Jemmeson is a Trader at Global Reach Partners, the foreign exchange company. The opinions expressed are his own.-
The alarm bells have been ringing in the UK since the surprise contraction in Q4 GDP 2010. The Bank of England (BoE) remains in limbo between the ECB, who recently hiked despite their problems with sovereign debt and the US, where quantitative easing remains in force until at least June. The release of the preliminary Q1 GDP on the 27 April could be instrumental in determining not just how the currency and financial markets perform, but in directing measures the BoE and coalition government may have to take. Since the surprise contraction in GDP, the BoE has been forced to sit on its hands and watch inflation continue to increase while reiterating its belief that this is just a temporary phase. There is a real dilemma in the UK that has split the market; will the UK face the daunting reality of a double dip recession?
Ireland's fall from grace has been rapid and far worse than that of its counterparts, even Greece. But life in the euro zone has still been one of profound growth, as it has for most of the other peripheral economies.
Take a look first at the progress of PIGS (Portugal, Ireland, Greece and Spain) GDP since 2007 when the global financial crisis took hold. In straight comparisons (ie, rebased to the same point) Ireland is far and away the biggest loser. Portugal is basically where it was.
from The Great Debate:
-The opinions expressed are the author's own-
Are economists the world over using an outdated tool to measure economic progress?
The question, long debated, is worth pondering again at a time when two economic giants, the United States and China, are sparring over trade, currency exchange rates and their roles in the global economy.
The latest International Monetary Fund meeting ended with emerging market powers getting a pledge from the organisation for stronger and "more even-handed" scrutiny of what is going on in large advanced economies.
As Reuters correspondents Lesley Wroughton and Emily Kaiser report here, the decision is a response to long-running frustrations among emerging economies, which reckon the Fund has not been tough enough on its biggest shareholders, led by the United States.
– Ian Campbell is a Reuters Breakingviews columnist. The opinions expressed are his own –
A first estimate of UK first-quarter growth is a chilly 0.2 percent. Failure of government policy, the opposition will say. Shows the folly of proposed Conservative spending cuts and tax increases, Gordon Brown, the prime minister, will claim. But a colder financial look will see that enormous stimulus has so far produced the weakest of recoveries. Whatever the election outcome, the UK’s leaders are going to have to be grown-ups. In this emergency, cooperation – or coalition – is required.
How can a country support debt of over 100 percent of GDP for many years and then suddenly start spiralling towards insolvency? That question of sovereign debt maths is not merely academic. It is highly relevant to the likes of Greece and Italy.
The answer is that size of the sovereign debt burden is not everything when it comes to keeping up with interest payments. No matter how high the ratio of debt to GDP may be, it does not need to increase as long as the government has two factors going its way: the "primary" budget balance -- the balance before interest payments -- and the growth rate of nominal GDP.