Industry | 2009.10.31
Are those shoots any greener? | Guardian round table
Last budget day, we gauged optimism around economic recovery. Six months later, we return to our experts
I would raise my \'green shoots\' rating from 1 to 2 out of five. Since the original assessment we have begun to see some of the positive results of a strong, co-ordinated international response to the financial crisis, the continuation of aggressive monetary policy in the UK, and the stimulus from devaluation. After a massive financial heart attack the patient has been stabilised in intensive care and is now showing signs of recovery. I remain concerned that, despite a revival of confidence and an approaching end to technical recession, the health of the underlying economy is still fragile and dependent on a continued life support system. Household debt remains very high, inhibiting spending. Bank lending is not flowing to solvent companies and the shortage of credit is still stifling recovery. Government borrowing remains exceptionally high – and there will be a serious problem with managing a fiscal correction in ways that do not provoke a return to recession. There is a similar dilemma over when to withdraw the monetary steroids – quantitative easing – and how, in setting interest rates, to reconcile the likely re-emergence of inflation over the target level with continued growth weakness and worryingly high unemployment. There are many obstacles to getting the patient from intensive care to a semblance of normal life.
Vince Cable is deputy leader of the Liberal Democrats and Treasury spokesman
Green shoots rating, out of five: 2 (In April: 1)
There are some hopeful signs. There are improvements in business confidence, possible increases in bank lending and, most positively, clear signs that government stimulus packages are creating real growth in Asia and Europe.
But this is very fragile. Output and sales in the UK remain sluggish, and unemployment is still rising, if a little more slowly. An unreformed and over-exuberant City could still do damage. Shares look unnaturally high - and if this bubble bursts - confidence could be seriously damaged. Banks are still addicted to high risk, high bonus speculation. The biggest worry is political. It is much too soon to be dealing with the deficit, which is an unavoidable consequence of recession and cannot be closed without a proper recovery. Premature action on the deficit focused on spending cuts will not only hit vital public services but could easily send us into a double-quick double-dip recession that would make the deficit worse. When business and consumers stop spending, the state must take up the slack. Spending cuts, public-sector job losses and pay freezes would hit the wider economy hard, and could easily undo the effects of government and Bank of England stimulus.
Brendan Barber is general secretary of the TUC
GSR: 1.5 (1)
The economy is certainly looking brighter than it did six months ago and, if anything, appearing a little healthier at this juncture than I expected back in April.But given the quite amazingly loose monetary policy over this period – low interest rates, an easier pound and £175bn of quantitative easing – it would have been little less than a complete disaster if it hadn\'t been brighter. The Bank of England has been much criticised for its policies in recent months, but in my view it has been exactly what the very sickly economy ordered. There is little doubt that the precipitous decline in economic activity has all but slowed to a halt – GDP may even show a marginal increase in the third quarter. Moreover, the housing market has, apparently, stabilised – and far quicker than many expected. But the outlook is overshadowed by the disastrous state of the public finances. Higher taxes coupled with severe spending restraints can only dampen the economy\'s overall recovery.
Ruth Lea is director, Arbuthnot Banking Group
GSR: 2.5 (1)
The economy has stabilised since the spring, but it has not yet started to recover, even in the most limited sense of the term – which would be that real gross domestic product has started clearly to rise on a quarter-on-quarter basis. When the figures for 2009 Q3 are released today, any rise in total output will be minimal, and certainly less than we are likely to see in the US or Europe during that period. This is disappointing, but there are some brighter spots, notably the definite improvement in the housing market, and the slowing in the rate of deterioration in the labour market. It is now possible that the unemployment rate (currently 7.9%) will peak at well below 10%, which is somewhat less than I expected at budget time. However, we are unlikely to see a marked decline in unemployment until real GDP grows at a rate above its long-term trend (which is about 2.7%), and that may not happen before 2011.That is when most ordinary people are likely to become convinced that a genuine recovery is taking hold. That is when most ordinary people are likely to become convinced that a genuine recovery is taking hold.
Gavyn Davies is chairman of Fulcrum Asset Management
GSR: 2.5 (2)
Has the economy strengthened or weakened over the last six months? By what metric? Trade figures? Unemployment? House prices? Consumer spending? Bankers bonuses? Since energy use still correlates well with economic activity I turned to the government\'s energy trends. Comparing last quarter\'s energy trends with those 12 months ago, virtually every metric shows a decline. Industrial, commercial, domestic, even transport demand: all down. It would be reassuring to think that the government\'s effort to make us improve our energy efficiency are the cause, but I fear that\'s unlikely. The smart folk in the City generating money with the click of a mouse may be back in action, but it seems the rest of the economy is still winding down. Good news for the climate, but not for the economy.
Bryony Worthington is founder of Sandbag.org.uk
GSR: 1 (3)
Six months ago, in the teeth of recession, hard-working small businesses knew full well that they hadn\'t turned the corner into any kind of recovery. Now, the picture is a bit different. Mortgage lending and home sales have both risen over the summer, showing that confidence is on the up. There\'s more good news. Insolvency figures show a picture with a faintly rosier tinge, stating that the number of failing firms fell between August and October this year. We know that small businesses have been taking advantage of all the support the government has put in place. The tax man\'s offer to firms to defer their tax dues has been taken up by over 215,000 companies, deferring in total just under £4bn in tax over the past year. In addition more than £500m in loans has been offered to over 5,000 small firms taking up the government\'s enterprise finance guarantee . According to other reports, three quarters of businesses are looking forward to an upturn in 2010 and one in three are confident enough to expect it to begin in January. Times are certainly still difficult, but the economy is looking up – and small businesses are now motoring.
Stephen Alambritis is spokesman for the Federation of Small Businesses
GSR: 3.5 (2)
The green shoots are to be seen but they look pale and rather droopy. More worrying still is just how many roots have been killed by this recession. The West Midlands area, once the workshop of Britain, has been ill-served by the technological revolution and continues to lose industry, large and small. Some of this was the inevitable price of progress, some was caused by unsympathetic government policies towards the area\'s bedrock companies over many years, a good deal more by poor management – and now the former blue chip motor industry is seriously threatened, the three leading vehicle producers having been taken over by Indian, Russian and Chinese manufacturers. Jaguar, Land Rover, Austin Rover and LDV vans may well become survivors of the storm in name only. Even Cadbury, the last of the iconic giants of the region, is having to fight off a takeover from Kraft, of the US, and that would mean further rationalisation with the probable loss of thousands of jobs. Against this background, it is no surprise that the heart of England has the highest unemployment in the country, a tragic waste of a huge range of skills gained over decades. Double-digit unemployment is a despised guest who, I suspect, will be with us for a number of years yet. An easing of bank loan policies would help but so far this has not been forthcoming. It is difficult for people to understand why banks that so recently took suicidal risks now reject small-firm pleas for a few thousand pounds to tide them over. Relatively, at least, the public sector thrives and the best-run companies continue to hang on. Low interest rates mean that shopping centres remain busy, although there have been many closures. Somehow people find the money to continue going to pubs, clubs, restaurants and entertainment centres. On the positive side too, house sales are picking up a little and at the higher end prices have been only marginally affected. Overall, the panic of a year ago has been shut in the lumber room but not locked away. It could re-emerge here amid real and growing hardship.
Karren Brady is former chief executive of Birmingham City Football Club
GSR: 3 (2)
My rating for economic recovery has not changed much – and continues to hover around zero. This might seem odd given a slight (but meaningless) upturn in GDP, the stock market bubble, and swelling bank bonuses. And odd too, since a falling pound boosts exports and allows Russian oligarchs and other holders of euros to push up house prices by snapping up scarce London properties.
My pessimism persists because, despite the windfall gains provided by the Bank of England and taxpayers, the balance sheets of banks remain very fragile – making bonus profligacy both financially and morally questionable. Rising mortgage and other defaults will hurt the City of London as bankruptcies and unemployment worsen.
Domestic demand continues to fall, as banks tighten lending to consumers and companies, and as the latter pay down excessive debts. Things will be made worse as the environmentally crass "cash for clunkers" boost ends, and as VAT rises in January. The lower pound ought to help us balance this fall by boosting exports. But permanent output losses and the stalling of bank lending in both our major trading partners – the US and EU – mean there will be few customers for British goods. I am also not confident that a rising Asia can compensate for these losses – in time.
The growing political pressure to exacerbate the crisis by treating the government\'s budget as if it were a simple household budget and forcing it to balance worries me most. Politicians have forgotten that when government debt was five times what it is today – 250% of GDP in 1945 – a Labour government began to spend: by investing in the NHS, public housing and education. Miraculously (for economic orthodoxy) government debt fell. In other words, the government budget is not at all like a household budget – because government spending generates tax revenues. The economy will only recover when government investment compensates for a collapse in private investment. Right now that spending could take the form of urgent measures needed to deal with climate change – for example property insulation, flood defences and energy efficiency. Instead of marching into an election clouded by grim unemployment numbers, the government could be mobilising a "carbon army of green-collar workers". Sadly the grip of economic orthodoxy on the public imagination is such that we are about to trample all over feeble green shoots, and sink into the quagmire of depression.
Ann Pettifor is executive director of Advocacy International
GSR: 0 (0)
There\'s a great deal of hope that the latest GDP figures will show that the economy has begun to grow, bringing to an end a long and hard recession. Employment appears to be holding up and unemployment, actually fell slightly in the most recent data, stoking hopes that it may even peak below the dreaded 3 million mark. But the huge amount of debt weighing on consumers and the steady withdrawal of fiscal stimulus from the end of the year will be a drag on the economy for a while yet. The origins of this recession – over-indebtedness and asset bubbles – mean that we\'re in for at least a year of anaemic growth and probably more, even if the economy has begun to show signs of life.
Ian Mulheirn is director of the Social Market Foundation
GSR: 2.5 (2)
Six months ago, I said that it was too early to say the recession was over. But in Dorchester we have been very lucky. The townspeople have supported each other, and though over the past 12 months 20 stores have closed, 25 have now re-opened. Everyone has just had to work that bit harder to stay positive. We have learnt very quickly to adapt and listen to our customer needs. Things haven\'t changed a lot, we are still talking about the banking crisis, and not much seems to have changed for the ordinary people on the high street. Customers are going to be just as cautious this Christmas as they were the last.
Claire Robertson is the founder of Wellworths
GSR: 3 (3)
For more information, please visit
http://www.guardian.co.uk/commentisfree/[...]ion-recovery-jobs-house-prices
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