Monday, 25 July 2011

Economic growth - why is it still so slow?

So tomorrow it's the second quarterly data release for this year's GDP growth. How much did the economy grow between the end of March and the end of June? We'll find out in the morning.

Please do stifle your yawn. For behind the algebraic talk of 'Q2', 'fiscal tightening', 'quantitative easing' and the like, there are a real set of icebergs out there for the British economy.

The growth figure is likely to be low. Very low. Some political commentators are even beginning to speculate that it might even be negative - that there's have been little economic growth at all over the last nine months or so (the end of last year saw the economy grind to a halt in a blizzard-like whiteout).

That's still pretty unlikely. Investment has been strengthening, and exports are still pretty good, even to the Eurozone (the remarkable performance of whose core economic powerhouse, Germany, is of course part of the Euro's problem). Interest rates are likely to remain low for some time.

Still, the figure probably won't be all that good, even if there's a surprise tick upwards. The risks are still on the downside. The monetary boom of our banking bubble continues to boost inflation. House prices probably have further to fall.

The truth is that British domestic demand is too low, and is being artificially repressed by a government determined to shout from the rooftops about their 'terrible' legacy of debt, and to cut, cut and cut again. Even banks and sober business academics are beginning to come round to this case - that there's just a great big hole where British spending and buying might be. You don't have to listen to Ed Balls, Labour's Shadow Chancellor (above) to understand that the Coalition has cut the engines at the wrong time - when even the deficit, as the excellent Ben Chu of The Independent has pointed out, isn't terrifyingly high in its proper historical context. By the way, the actual stock of total debts isn't at all worrying by the same standards, but that's another story.

With a Euro area default or even splintering still very much on the cards, and infantile US politicians still empty-handed as they search for a budget deal by next Tuesday, there are even more shoals to negotiate before we can hit the beaches. And a long, hard slog back to economic health lies ahead, even once we're all back at our desks in September. It's a path sadly but remorselessly made all the more difficult by misguided government policies.

Who can rescue us from the deficit hawks and the growth deniers? Anyone?

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