The Autumn budget is one of two scheduled statements the Chancellor gives each year to inform the public about tax and spend plans and provide the latest growth forecasts. These budget statements are useful not only for the public, but also for investors in our debt, rating agencies and global businesses. Hence they are a big deal, and it is important that they are accurate.
However, the latest statement delivered by George Osborne didn’t quite ring true. Let’s look at growth forecasts first. The Office for Budget Responsibility (OBR), who creates this forecast, revised down 2012 GDP for the second time to -0.1% from the original forecast of 0.8%. So rather than grow at a modest, but positive, rate the economy is now expected to contract this year. If you invested in the UK partly based on this data, you could be forgiven for being rather cheesed off that your investment had yet to bear fruit.
By Kathleen Brooks. The opinions expressed are her own.
The aftermath of the U.S. presidential election has seen some tentative steps towards political harmony. After a bruising campaign with Democrats and Republicans at each others throats for most of the last two years, President Obama declared in his victory speech that there is no such thing as blue or red states, there is only the United States of America.
This is what makes America one country. Different states may have various social and cultural attitudes, but at the end of the day each person identifies themselves as American, and they are proud. Likewise, the euro zone is made up of disparate member states with different cultures, attitudes and fiscal stances. But that is where the similarity ends. The U.S. presidential election was a stark reminder just how far we from a United States of Europe.
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.
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.
A hot topic at the moment is whether or not women can have it all, triggered by a thought-provoking article in U.S. magazine The Atlantic, written by the former first female planning director at the State Department, Anne-Marie Slaughter. The author had been a successful academic before she went to Washington to take up her post at the State Department. She left after two years to spend more time with her family, who were living in a different state in the U.S.
Slaughter, who has two teenage sons and, by all accounts, a loving and caring husband who she can rely on, felt that she could not have it all. She believed that the current way the economy and society is set up in America makes it incredibly hard for women to manage a family and a work life simultaneously. Bear in mind, Slaughter travelled to work five days a week in a different state while her husband stayed at home with the kids.
The bulk of reporting and analysis on the current state of the euro zone sovereign debt crisis has focused on the structural changes that Europe needs to make to survive. Closer fiscal ties, euro bonds, pooled tax revenues and a centralised spending authority have been bandied about.
A lot of people think that these changes are the only way to bring down credit risk and pull Spain and Italy back from the cliff edge they currently find themselves on.
The West’s claim to be a capitalist society has been eroded throughout the European sovereign debt crisis. If we were truly capitalist then the markets wouldn’t expect Germany to step in to solve the euro zone’s problems or to eradicate the excess debts of Europe’s periphery. The prospect of this safety cushion provided by Berlin has kept the euro propped up even though Spanish bond yields are hovering around 7%, even after it received the go-ahead to get a bailout for its banks.
The same is true the other side of the pond. Since the financial crisis, the central bank in the U.S. has stepped in to prop up stock markets and other asset classes with quantitative easing when volatility has spiked. Some people in the markets now just expect officials to step in and save investors when the going gets tough.
The upcoming elections in Greece have gained added significance in recent weeks. It’s not just the Greek people choosing their next leader; it is also being presented as a referendum on euro membership. Either vote for a pro-bailout party and stay in the euro zone or vote anti-austerity and you’re out. But is the outcome of the vote really that clear cut? Although three quarters of Greeks want to remain in the euro zone, 80 percent want the terms of their second bailout to be re-negotiated. The elections might not be such a foregone conclusion after all.
It’s worth looking at the two potential “choices” currently being presented to the Greek people. If they choose a “pro-bailout” party that doesn’t mean that champagne corks will be popped in Berlin. Those in power in Athens need to answer to the electorate who will have given them a mandate to challenge Germany and its insistence on tough fiscal reform in return for bailout cash. So if Europe’s authorities think that the election of New Democracy (one of the parties who pledged to stick to fiscal reform post the election) is enough to keep Greece on the fiscal straight and narrow, think again.
Who wouldn’t want to have been an early investor in Facebook? The graffiti artist who spray painted the walls of Facebook HQ decided to take stock rather than a paycheck and will be $150 million dollars richer as a result.
Facebook is one of the biggest ever IPOs in the U.S. and at the end of last week it even managed to knock Greece out of the headlines and was credited with boosting market sentiment.
Throughout history it has always been difficult to take something away from someone once you have given it to them. Europe is finding that it is extremely difficult to reign in public finances once they start to go out of control. Democracies don’t like to vote for austerity, which is why Sarkozy lost the Presidency in France, why a radical left party came second in the Greek elections and why the Conservatives got a drubbing at last week’s local elections in the UK.
This tells us something about democracy in the western world. Governments have to manage the public finances directly – they have to sell the debt, do the sums and present budgets. However, the people who vote them into (and out of) power are the public, who rightly in most cases, believe they have worked hard, paid taxes and deserve the services and retirement promises made to them.