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No green shoots in sight as recession bites

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    No green shoots in sight as recession bites

    http://business.timesonline.co.uk/to...cle5447297.ece

    It is the recession that reaches the parts that other recessions have not reached. The economic slump in Britain that began in the late summer of last year is hitting us harder and faster, and will bite deeper and for longer, than most commentators are now predicting.

    The majority of pundits are busy celebrating the new year by summoning up the breezy attitudes of Dr Pangloss. The recession will, they assure us, be over not just by next Christmas, but well before it. Alas, they are kidding themselves.

    Widespread optimism that the recession will be over by the late summer is predicated on the pattern of Britain's past three postwar recessions; on the observation that this latest episode began with a bang, as GDP plunged by a much worse than expected 0.5 per cent in the third quarter of last year; and on the speedy and aggressive reaction by policymakers at the Treasury and Bank of England.

    Unfortunately, all of the assumed reasons for thinking that the recession will be a fading horror by the autumn are set to be proven to be dangerously misconceived.

    The conviction that because the downturn began with a rapid, steep plunge into the abyss we will therefore hit the bottom all the faster is especially misleading. Rather, the pace and scale of the first phase of recession suggests that in its entirety it will prove more, not less, severe.

    The brutal impact of the early stages of this recession on businesses across the country is already leading to bigger job cuts, sooner, than in the early months of the last, early Nineties recession. In turn, rapidly rising unemployment will further drain the lifeblood of demand from the economy and eat away at wilting confidence among companies and consumers, fuelling a downward spiral in activity.

    The assumption that the new recession will run on a similar timetable to the previous two is also set to prove to be badly misplaced. Since the early Nineties and early Eighties recessions ran for five quarters before ending with a resumption of economic growth, the conventional wisdom is that, counting from the second or third quarter of last year, we should be out of the woods by the autumn.

    It is certainly true that, on past form, recessions have a tendency to burn themselves out after four or five quarters. Yet if the economic history of the Eighties and Nineties is truly to be repeated then we ought already to be seeing the first tentative signs of light at the end of the tunnel, just as we did, around this point, in both of those downturns. Yet no such green shoots are apparent. In the bleak midwinter of this grim new year, the economic ground of Britain still stands as hard as iron.

    It may sound implausible to expect, amid the barrage of dire news, that there should be the scarcest hint of eventual recovery. Diligent study of past experience teaches, though, that what economists call “leading indicators” of recovery can and do begin to creep through long before growth itself takes hold. A new report by Vicky Redwood, of Capital Economics, examines which of these signals of economic recuperation are likely to be sighted first. It makes intriguing reading.

    On past form, the first green shoot to break through comes in the guise of a pick-up in consumer confidence, closely followed by improving business confidence. In previous recessions, consumer confidence has hit a low and then begun to climb between four and five quarters before the wider economy begins to expand once more. Business confidence has tended to show improvement between two and three quarters before the eventual resurgence in GDP. Other signs that recovery is in prospect include a rise in manufacturers' output expectations.

    If an end to recession in the second half of this year was really set to become a very welcome reality, we would expect to see at least some of these “green shoots” peeking through. None, sadly, are detectable.

    Critically, the reason why this recession is different, and will almost certainly prove longer and deeper than the optimists expect, is the credit crunch - a factor that was absent, at least on its present scale, in the past two slumps.

    The scarcity and high cost of credit for consumers, prospective homebuyers and, crucially, for businesses of all sizes, is aggravating the downturn by thwarting the normal workings of the economy.

    For much of corporate Britain - as business leaders have been warning loudly- this is turning an economic drama into a calamitous crisis. During the coming year, businesses across the country need to refinance more than £50billion of loan facilities that are about to run out. Most of this is not the sort of toxically irresponsible borrowing that consumers have piled up, but instead is the vital fuel of working capital on which companies depend for their existence. Many will find it hard to refinance; some will fail do so and collapse, adding to the unemployment toll.

    The optimists are counting on the aggressive reaction to the recession, through drastic interest rate cuts to historic lows, and the Government's £50 billion recapitalisation of the banks, to counter the credit crunch's inexorable throttling of economic activity.

    While these steps were necessary and commendable, they have still proved insufficient. The Bank of England itself reported last week that lenders have tightened the screws of credit in recent months and are planning to do so still more.

    The Bank will step up its efforts, cutting interest rates to under 2 per cent, a level not seen for more than three centuries. Yet it is the quantity of funds available to borrow, not their cost, that remains the fundamental issue and still more radical action will be needed.

    The good news is that we are likely to get it and soon.

    The really bad news is that even if the seeds of economic recovery are now being sown, it will be months before they sprout.

    #2
    No surprise there then.
    Hard Brexit now!
    #prayfornodeal

    Comment


      #3
      No surprise at all. Delaying interest rate cuts for a year was fatal for New Lie as the current cuts take at least six months to filter through. If only they had listened to me..... I am pleased that they didn't though !!

      Comment


        #4
        As Cyberman is on my Ignore List, his latest cretinism luckily will not pass my consciousness.
        Hard Brexit now!
        #prayfornodeal

        Comment


          #5
          .. who was that ?

          Comment

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