– Wei Gu is a Reuters columnist. The opinions expressed are her own —

If current trends continue, China might swing to a trade deficit in the not-too-distant future. Given that China has enjoyed more than a decade of strong exports, this may sound a bit far-fetched. But even if it happens, this would not necessarily be something for the world to worry about.

Some economists have recently sounded alarm bells about the possibility of a Chinese trade deficit. They argue that if the Chinese current account surplus shrinks, it would leave Beijing with less spare cash to buy U.S. Treasury bonds. Then who would fund the U.S. budget deficit — and, by implication, U.S. consumers?

Those worries are largely misplaced. First, it is unlikely to happen any time soon. In order for China to have a trade deficit next year, imports would have to outgrow — or shrink less than — exports by at least 23 percentage points.

In August, exports fell 23.4 percent while imports fell 17 percent. So while the trade surplus is diminishing, a deficit is not around the corner.

If China’s trade surplus shrinks, it will most likely be caused by a contracting U.S. deficit, in which case Americans will be saving more and the U.S. will be less dependent on overseas investors to finance its government debt. That would be a sign that the long-overdue rebalancing of the global economy was beginning to take place.

It would not be so bad for the Chinese economy either, because China is a lot less dependent on exports than many people assume. Although exports have accounted for a whopping 50 percent of the economy in the past few years, the contribution of net exports to economic growth is actually much smaller, because a lot of what China sells abroad is low value-added assembly work.

In the same way, one cannot just look at China’s large imports number and jump to the conclusion that China is a big end-user of the world’s goods. China’s imports accounted for a third of its gross domestic product last year, versus about 17 percent in the U.S. during the same period. But this is because a lot of what China imports, such as computer parts, eventually finds its way abroad.

On average, net exports contributed 1.4 percentage points to annual GDP growth between 1979 and 2007, according to the Statistics Bureau, much less than the contribution from the other two drivers — consumption and investment.

The transition to a more balanced trade account will take time. In particular, it will need a push from foreign exchange reforms, as the currently undervalued yuan encourages exports and discourages imports. China allowed the yuan to rise gradually for a few years after 2005, but has re-pegged it to the dollar since the start of the credit crisis.

It will take time before Beijing is confident enough to remove some of the export incentives, or at least not pile them up as it has done in response to the crisis. A more equalised trade account will probably not hurt China’s overall growth that much, but will help in making the world economy more balanced.

– At the time of publication Wei Gu did not own any direct investments in securities mentioned in this article. She may be an owner indirectly as an investor in a fund —

Al Breach was Russia economist with UBS and Goldman Sachs and is currently managing partner of TheBrowser.com. The views expressed are his own.

HOSTENTAL, Switzerland - How bad was Japan’s “lost decade”? As we look east for clues as to the possible fate of western economies, it is worth dwelling on what actually happened, and not just how it was reported.

Japan’s stock market bubble burst at the end of 1989, and house prices started to fall about a year later. Asset prices at the peak were wildly inflated. Stock prices were trading at ratios of well above 50 times boom-time earnings, while the total value of housing represented around 300 percent of GDP.

These bubbles had formed after decades of rapid growth and, critically, even more rapid credit expansion. Total bank credit to the private sector had risen to 200 percent of GDP, doubling over 20 years.

(more…)

- 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.

It's hard not to be cynical about what the markets are supposedly telling us this week.

Don't get me wrong, I think markets can be a good barometer for sentiment and a leading indicator for trends before they bubble to the surface.

But their behavior this week suggests that the few traders and investors working during these dog days of summer are more interested in pushing prices around for short-term gain than making a bet on where the economy and financial markets are heading.

It's nothing new that trading desks are thinly staffed in the last weeks of summer, but after last year's rude interruption of summer holidays, more are taking advantage of the relative calm this year to soak their feet in the ocean rather than man the phones.

That's caused some interesting cross-currents that are making the message a bit of a muddle. Today, for example, oil prices rose early on hopes of an economic recovery while gold, a haven for those seeking a safe harbor, marched toward $1,000 per ounce as investors grew more cautious.

And Treasuries, after two days of solid gains despite better than expected economic data, fell today as investors continued to look to the stock market rather than data for clues.

Treasury yields, in fact, had been threatening to break back to lows seen in May even though the government has flooded the market with new notes -- $70 billion more to come next week -- and the economy has improved markedly since then.

Manufacturing is expanding, the rate of job losses, though still uncomfortably large, has slowed and the housing market that got the U.S. economy in such a mess in the first place is no longer in freefall.

And then there's the influence of the Chinese stock market. A 4.8 percent gain in the Shanghai Composite index got the ball rolling for global equities earlier today, but was the catalyst a data point or signs of better days ahead? No, it was a regulator telling investors that the market was healthy.

Earlier this week, the turning of the calendar to September -- a month that now strikes fear into even the most rational investor, after last year's meltdown punctuated what had already been a historically bad month for stocks -- did the trick.

Suddenly, investors worried about the health of the banking sector, even though the rally since March has been wedded to its supposed recovery.

Even Friday's jobs report, one of the most influential economic indicators, may not be enough to infuse much meaning. It comes ahead of a long holiday in the United States that brings an unofficial end to summer. That should make it even easier to push and pull prices around.

This should begin to change next week as holidays end and liquidity returns. That doesn't mean investors will like the message, but hopefully it will be clearer.

The victorious Democratic Party of Japan did not put economic growth at the heart of its electoral sales pitch. The party's manifesto mentions "growth" only once. The word "support", by contrast, appears 19 times.

Even so, there are reasons for optimism that the DPJ's softer and more nurturing policies are just what the economy needs.

The global slump provided a painful reminder of the dangers of Japan's export-oriented growth strategy. Output has fallen even faster than in other rich countries, leaving national income at roughly the same level as in the early 1990s.

After two decades of stumbling between recessions, policy makers need to convince their citizens to spend some of their vast cash savings, which are now equal to 1.5 times GDP. Making the Japanese feel more secure may be the best way of doing this.

There is plenty in the DPJ's platform that looks encouraging. If Japan's new government can enact election pledges, Japanese citizens would have fewer reasons to hoard cash.

Parents would benefit from a generous child allowance. High-school education would be made free and university scholarships more plentiful. For the elderly, there would be a minimum guaranteed pension of at least 70,000 yen (about $750) a month. The unemployed would get 100,000 yen (about $1,100) a month during job training.

There are two problems, however. The first is how to pay for this largess. The party's belief that its $180 billion social agenda can be financed by cutting wasteful spending has left some economists unconvinced. A good deal of the fat in the budget was cut out when Junichiro Koizumi was prime minister from 2001 to 2006.

Canceling public works may be easy. But reducing the cost of Japan's powerful civil service by 20 percent is a tall order -- especially when combined with a drive to strip senior mandarins of much of their influence.

Meanwhile the DPJ seems reluctant to privatize the government's giant postal savings and insurance businesses. An IPO could provide a large injection of cash without the need to trim costs or raise taxes.

If the Japanese feel the new social programs are unsustainable, they may be more reluctant to spend. With national debt at over 200 percent of GDP, a degree of skepticism would be natural.

The second economic headwind for the DPJ is even harder to overcome. Shrinking pay checks will make it difficult to tempt the Japanese into the shops. This year wages have been falling at their fastest pace on record -- 7.1 percent in the year to June.

Beyond the cyclical downturn, deeper demographic forces are at work. As highly paid baby boomers retire, they are being replaced by cheaper youths, according to Edward Lincoln, an economics professor at New York University. This is ratcheting down wages.

A decline in the working age population will also make economic growth more of an uphill struggle. Overall the number of Japanese citizens has been falling since 2005. This makes Japan an unlikely engine of global growth even if the DPJ gets everything right.

Promising as some of its policies are, Japan's new government will face strong headwinds. But it is good news both for Japan and the world that the country now has a leadership that seems inclined to put the interests of consumers before exporters.

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.

– Christopher Swann is a Reuters columnist. The views expressed are his own –

Recession historians on Wall Street often consider a downturn over when job declines fall to half their peak.

The July employment report, with its revisions, takes us past this milestone. The numbers were better than expected in almost every respect. There was even a tick up in hours worked, especially in manufacturing. The output component of the recession has probably already ended.

Even so, the labor market is likely to remain grim for a very long time. That a decline in payrolls of 247,000 should be taken as good news is an indication of how bad things have become. Such falls were close to the average in most postwar recessions, not an indication that the worst was over.

In the recession of the early 1980s, the peak job loss was 389,000. In this recession it has been around 740,000. So we are still on a different trajectory. The United States may continue to bleed jobs at a fast pace for some time to come.

There has seldom been more slack in the labor market. Businesses have plenty of room to increase the working hours of existing employees — which have declined far faster than in previous downturns.

Part-time workers can be brought fully on board. Only then might companies add to payrolls.

After the end of the 2001 recession, it took 21 months for the labor market to fully turn around. Even the White House, which is becoming much better at managing expectations, is saying that it still expects the unemployment rate to reach 10 percent.

Once people lose their jobs, they are also spending longer out of work than in previous downturns. In the recession of the early 1980s the average spell of unemployment reached a peak of 20 weeks. Now it is at 25 weeks. A third of the jobless have now been without work for more than six months, up from 29 percent in June — both post-war records.

This is bad news for consumption, since state payouts typically cover less than half of a previous salary.

For America’s hobbled banking system the ever growing duration of unemployment is almost as ominous as job destruction itself. Few consumers have sufficient precautionary savings to continue to service debt for such extended periods once their income is halved.

Under an optimistic scenario, in which job creation rebounds to about 100,000 a month, it will still take five years to recover the more than 6.6 million jobs lost during the recession. This should keep consumer spending weak and means that the United States will remain vulnerable.

Over coming months the temptation to ease off the monetary and fiscal pedals will increase. It should be resisted. Policy makers should get used to looking at economic data in absolute as well as relative terms.

– Christopher Swann is a Reuters columnist. The views expressed are his own –

Cash-strapped politicians are more willing to play Robin Hood than at any time in a generation. Tax rates on the rich may soon hit levels not seen since the 1980s.
The wealthy, alas, are not easy prey. Backed by highly paid lawyers and accountants, no other group is better able to run circles around the taxman. As a result, America’s politicians may get less cash than they bargained for and more economic distortions.

There are many easier and less disruptive ways to get the cash.

Of course, the temptation to launch a direct strike on the rich is understandable. The past three decades have been very good to the affluent. The top 1 percent of earners now account for 19 percent of America’s income, up from 9 percent in 1980. This elite group has also been quiescent, dutifully paying 40 percent of all income tax, according to the non-partisan Congressional Budget Office.

It has been many years since the rich had a powerful incentive to test the limits of the tax code. The top rate of income tax has fallen with only minor interruptions since its vertiginous peak of 92 percent in 1953. But a foretaste of what might be expected was offered by Maryland’s ill-fated creation of a millionaires-tax bracket in 2008.

A year later 1,000 millionaires had disappeared — a third of the total — and revenues from this group had fallen by $100 million. Some may have left the state while others may have found ingenious ways to reduce their reported income.

The U.S. tax code is replete with legal dodges for the wealthy, whether you are a top executive, independent business owner or the lucky recipient of inherited wealth.

Well-paid salaried employees often have considerable leverage over how they are paid. For this group, tax-efficient fringe benefits — including lavish health plans, and use of the corporate jets and other perks — may increase. Stock options may become more popular still, enabling employees to defer tax until they retire and have lower incomes.

Business owners have even more flexibility and can deliberately muddle personal and business consumption. And as income tax surges above corporation tax, business owners may choose to pay themselves risible salaries, locking up their wealth in their companies.

The wealthy may also choose investment strategies that avoid income and maximize capital gains, further reducing potential tax revenues. The capital gains tax is preferable because there is flexibility in when gains can be taken. Tax-exempt municipal bonds could also become more popular.

Significantly higher taxes on the wealthy, then, could reduce tax reduces while encouraging businesses to waste more money on executive perks. Such unintended consequences could undermine efforts to stabilize the financial system. Politicians should avoid this lazy and wasteful solution.

Tidying up the fabulously complex tax system and closing loopholes could raise just as much money and be easier to market politically. Many of these measures have the advantage of extracting cash from the rich in ways they will find harder to avoid.

Scrapping the tax exemption of municipal bonds would eliminate a favorite haven for the wealthy.

Reducing or eliminating the gulf between income and capital gains — as Ronald Reagan’s 1986 tax reform did — reduces sharply the opportunity for hiding money.

A number of other quirks in the code also primarily benefit upper-income groups — including breaks on employer-provided healthcare, mortgage interest and state and local tax.

For the less progressively minded, the gradual imposition of value-added tax, as proposed by Bill Gale at Brookings, could raise a great deal of cash in the future while actually encouraging people to spend now.

A clumsy increase in top rate taxes, by contrast, will mainly be a bonanza for tax accountants and lawyers.

(James Saft is a Reuters columnist. The opinions expressed are his own)

Things in the U.S. economy are moving in the right direction, but the pace will be slow, frustrating and very likely to disappoint investors betting on a rip roaring old-fashioned recovery.

News that the Standard & Poor’s Case-Shiller 20 City house price index rose for the first time in almost three years in the three months to May was greeted with much rejoicing.
The Case-Shiller data is important and encouraging but not nearly as positive as it looks at first glance.

For one thing, house prices are supposed to rise in the spring; when looked at on a more meaningful seasonally adjusted basis prices are still falling, though at a slower rate than before.

For another, the relative improvement coincides with foreclosure moratoriums which are delaying but not eliminating the flood of repossessed houses.  One way or another these houses will need to clear the market and be a continued source of downward price pressure.

Rather than a recovery we are probably facing an extended slow descent in house prices. Compared to how things looked in February this is good news.

Inventories of unsold houses are declining, though they are still unusually high, and housing starts actually rose in June, though again from historically very low levels.
All in, it looks like a tentative recovery in housing activity, which will feel very good indeed after the past two years.

In combination with a bit of inventory restocking, after all there is some final demand in the economy, you might even call it a recovery.

But rather than springing out of bed and hurtling back to work, the U.S. economy will be like a recovering swine flu victim with little energy and very susceptible to a relapse.

“The normal cyclical dynamic in which housing, consumer durable goods purchases, and investment spending rebound in response to monetary easing is unlikely to be as powerful in this episode as during a typical economic recovery,” New York Federal Reserve President William Dudley said in a speech on Wednesday.

“There are a number of factors which suggest that the pace of recovery will be considerably slower than usual,” he said.

America is still “long” housing, its just that too many of the houses are not in the right places and too many are owned by people who’d be better off renting.

We’ve seen the homeowner vacancy rate decline, but the rental vacancy rate rise to record highs. Even if we believed that the price adjustment was over, it would be hard to underwrite a strong economic rebound on the back of housing in the current circumstances.

BALANCE SHEETS REPAIRED, CONSUMPTION IMPAIRED

The key to any recovery is consumption, which at 70 percent of the U.S economy may well be at a generational high.

Even if house prices don’t fall very far from here, they, along with stock prices, are down enough to have dealt a very serious blow to the average household’s balance sheet. Quite sensibly, if a bit surprisingly, people are attempting to fill that hole by saving.

According to U.S. Commerce Department data the savings rate rose to 6.9 percent in May, the highest since the end of 1993 and up from just over zero in early 2008. Who’s to say too that Americans don’t continue to increase their savings from here, perhaps back up to 8.0 percent or more.

Unemployment is rising and will take some time to fall and there is a growing realization that given growing life expectancy people’s pensions are woefully underfunded.

Income growth is not going to rescue consumption either.  The New York Fed’s Dudley pointed out that despite cuts in hours worked and lousy wage gains, incomes in the first half of the year were boosted by a number of one-time factors, such as falling energy prices and a one-off payment to Social Security recipients.

A higher savings rate and poor income growth add up to a really profound check on consumption spending, something that will make earnings growth for many companies difficult despite savage cost cutting.

I’d bet too that income growth recovers long before the savings rate falls. Business plans or investments strategies based on growing consumption in the U.S. are going to be losing ones for quite some time.

And of course there is commercial real estate, which is not only the single biggest landmine for banks but will be a source of further outright contraction as current projects are completed and developers, businesses and their banks shorten their sails.

Construction, once begun is carried through but who will be breaking ground on new projects?

None of this is necessarily bad, and again, is actually pretty good compared to where we were just a few short months ago. But a world in which Americans save and pay down debt and where banks lend cautiously while rebuilding balance sheets may not be one where current stock market values are validated.

(At the time of publication James Saft did not own any direct investments in securities mentioned in this article. He may be an owner indirectly as an investor in a fund.)

-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?