Friday, Dec 26, 2008
UK economy to contract by 2.9% in 2009
BBC: Gloomy prediction for UK economy
The Centre for Economics and Business Research (CEBR) predicts the economy will shrink by 2.9% in 2009 - more than at any time since the 1940s.
Posted by peter_2008 @ 09:05 AM (1254 views) Add Comment
20 Comments
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1. paul said...
"no more boom and bust"
2. crunchy said...
"Chancellor Alistair Darling has said the UK will return to growth in the second half of 2009.
He predicts stimulus moves funded by extra borrowing - such as the VAT cut - will see a "shorter and shallower" slowdown than feared."
What joke did you get in your Chrismas crackers?
3. uncle tom said...
A year or so I back, I concluded that close to 20% of UK GDP was either directly or indirectly a consequence of unsustainable debt fuelled excess.
The government's borrowing spree will provide a temporary softening of the inevitable consequences following the return of consumer borrowing to sustainable normality, but I find the figure of -2.9% for next year to be a bit optimistic..
Where I really take issue is the ludicrous govt. assertion that growth will return towards the end of next year, and that bust will be followed by boom in short order.
There really is absolutely nothing on the horizon to justify that idea.
4. Tigger007 said...
Uncle Tom, what were the assumptions you used/ calculations you did in order to come to the conclusion that circa 20% of UK GDP is 'either directly or indirectly a consequence of unsustainable debt fuelled excess.'? I agree - intuitively, there's absolutely no way UK is returning to growth in 2009...and if they allow another huge asset price bubble any time in the next decade then they're even more stupid than they've proven themselves to be over the last year.
5. icarus said...
UT - these guys are so far behind the curve it's not true. A year ago I told one of the people mentioned in this piece that another great depression was a real possibility (this view was based to a large extent on articles and blogs on this site). At the time he laughed this off - mentioned something about the gold standard (I assume he meant that the gold standard made it difficult in the '30s to reflate/inflate by devaluing fiat currencies and printing money). Another 'top' economist tried to tell me the other day that government interventions just needed a bit more time to work If these are s'posed to be the top economic brains I shudder to think what's going to happen in 2009.
6. crunchy said...
Untill unemployment figures, house and commercial repossesions and business liquidations show a bottom all bets are off as far as I'm concerned.
.......................................................2009, Who pushed the panic button?
7. Britishblue said...
Of course Brown and Darling know things are going to get much worse. But nowadays government can't always tell the entire truth. Not because they are bent or stupid, but because there are many other forces out there seeking to capitalise on a given circumstance just as they did when we were forced out of the ERM many years ago. Plus people panic and if they panic the wrong way the results can be catastrophic.
What would really happen to our economy, currency and public stability if Gordon Brown stood up and said that in the next two years he expects housing to decline a further 25%, for 3 million people to be unemployed, for more companies to go to the wall than ever before, for GDP to drop to -5% and if it gets too bad the government having to nationalise not only the banking system but also have a greater involvement in many other industries. Many people that have read this site for several years wouldn't think that this was too pessimistic a forecast.
Unfortunately, he can't tell the real truth because it will incite public panic and the speculators will rub their hands with glee and play havoc with the currency and various companies on the stock exchange and the banks will cease to lend on the basis that almost everything is a bad risk. It will make things much, much worse than the dire situations we are going to be in, in the next 2-3 years.
What the government can do is issue sound bites and even then they can be accused of going to far.. Alistair Darling on the 30th August at a G7confernce said that, 'economic conditions were arguably the worst for 60 years.' (Icarus . it could be argued he was ahead of the curve in this point of time. No other western chancellor was saying this).
What is telling was David Cameron;s response, ‘I think it’s extraordinary that the chancellor said it, because – remember – a chancellor of the exchequer has got to think not only “I must tell the truth at all times” but also “I must use my words carefully, so that I don’t actually create a situation that’s even worse, that creates a crisis of confidence.”’
Therefore we will not get the entire truth from any government handling this crisis in Europe. If we do expect that government to fall pretty quickly and be blamed for 'creating a crisis.' For truth or honest forecast of whatis going to happen look at eminent professors like Nouriel Roubini who has been proved right time and time again
8. gardeniadotnet said...
Nouriel Roubini is now behind the curve. His most pessimistic predictions have already been realised, and for one reason or another he has become increasingly mealy-mouthed.
All bets are now off as far as the developing economic disaster is concerned.
FWIW I look to Martin Weiss and Peter Schiff for a day-by-day analysis of what's happening. Both seem to have been wrong-footed by the renewed strength of the dollar, but neither is entrenched in their positions - probably because they're both openly trying to make money from the current chaos.
9. uncle tom said...
Tigger,
It was quite a lengthy calculation, derived from core data.
Essentially, if there is excess borrowing in an economy that has a very high service element (as has happened in the UK) you get what I can best describe as a money-go-round, with new debt counting not just once, but several times over.
Put simply, a person borrows, so he spends more. That means someone else earns more, and more tax is paid to the treasury. In turn they spend more/have more money to spend, and so it goes on.
In a balanced economy, a little excess in the consumer sector gives rise to higher tax receipts which in turn are used to pay off the national debt - the money-go-round is not allowed to gather any momentum.
In our recent economy, rising tax receipts have been trumped by even higher government spending, leading to the illusion of economic growth, while in fact, manufacturing output has been falling, and trade deficits are at critical levels.
The irresponsibility of Gordon Brown, unwittingly aided by the incompetance of George Osborne in opposition (who has clearly failed to grasp the magnitude of what has been going on) is on a scale that has no precedent in British political history.
This IS the big one, the big bust..
..batten down your hatches!
10. drewster said...
gardenia,
I've probably mentioned this before but for someone ahead of the curve look at Mish. Thanks for the tip on the other two.
Icarus and others,
I agree. Remember that a year ago most economists were predicting 5% house price falls at most, followed by a swift rebound. The estimate of GDP contraction looks similarly misplaced. I suppose measured in (sinking) pounds GDP could remain flat, but to the rest of the world Britain is going down. BTW I think the pound has further to fall vs the dollar.
11. beartil2010 said...
Drewster - I agree. Mish has been faultless throughout this crisis, and predicted dollar strength. I read his blog every day.
Pound/UK economy - I believe that all economies have similar levels of near and medium term pain to go through, and consequently there is little to choose between them, apart from interest rates. The German economy actually contracted at a faster rate than the UK over the last quarter I believe, and Japan is in a similar position - exports are drying up so fast it's frightening! The pound/dollar balance is back to about its traditional level, but the euro is overvalued, likely because the interest rate is still slightly higher. I look to the euro to sink over the next 3 months, and also the Ozzie dollar, IR here is about 4.5%, while the mining companies are all crumbling!
(ps. I am not suggesting the UK is in a similar economic position to companies like Germany; I believe all countries are heading down at the same speed, and that countries like Germany will recover much more rapidly than the UK. I think the UK could well be in the doldrums/a relative decline period for several years)
12. gardeniadotnet said...
11. beartil2010 said... Mish has... predicted dollar strength
Link please.
13. stillthinking said...
@ut 9.
I think so too. Government revenues are fake and will collapse much more drastically than announced.
I wonder if, all other things being in balance,which they aren't, the figure of 2.9% represents the amount of the economy in the private sector the government must eat each year to keep going. In which case dropping taxes by 3% overall (and cutting the associated spending) would restore a kind of balance. Thats just an idea though. I will think about that more. This must be skewed by the fake borrowed GDP.
14. mark wadsworth said...
@ Icarus "Another 'top' economist tried to tell me the other day that government interventions just needed a bit more time to work"
I keep reading that central banks (one branch of government) are going to fix this by by buying up government bonds issued by treasury departments (another branch of government).
Try asking him (or her) exactly what the point is and report back here. That should raise a chuckle if nothing else.
15. icarus said...
@ mark w - I'll just refer him to http://www.chrismartenson.com/crashcourse/chapter-8-fed-money-creation
16. beartil2010 said...
@ Gardeniadotnet
Mish posts about 3 times everyday, so finding the info could take me ages. I'll have a look.
Probably the best way to get the info is to mail him asking for his relevant links, he reads his mail and may respond, he keeps all the associated topics and posts catalogued (I know this as he refers back to topic-collections regularly to illustrate current arguments).
Site is www.globaleconomicanalysis.blogspot.com
17. beartil2010 said...
@Gardeniadotnet
Okay, try this. An article about treasuries, but also deals with currencies; has a catalogue of four previous posts that deal with dollar strength and other currencies within it also.
http://globaleconomicanalysis.blogspot.com/2008/09/treasury-bull-alive-and-kicking.html
If the link does not work, just go to the main site, and put 'dollar strength' into the search box. Results come up most-recent-date-first, so just keep going down to see the history.
18. beartil2010 said...
After more than a year of economic research, HPC and Mish are the two sites I now read every day and that's it, . Anyone else got any recommended sites I should have a look at?
19. mountain goat said...
beartil2010 also worth reading are John Mauldin (his articles appear on Market Oracle and on his webpage) and Barry Ritholtz http://www.ritholtz.com/blog/. I read Mish but to say he has been faultless is a big exaggeration. Also if someone has been right on a few calls in the past is no guarantee about the future. The person who was clearly right about the dollar/deflation was Prechter the Elliott Wave guy.
20. beartil2010 said...
@mountain goat - thanks, I have bookmarked the ritholz blog and will have a look at it - cheers.
When you say Mish has not been faultless, what would you pick out that he has been wrong on? He predicted the global deflation while all were still pushing inflation in january/feb, dollar strength, the gold drop from deleveraging, and its current recovery. Have you seen some stuff that you disagree with?
Of course he doesn't know everything, but I think he's quite candid at where his limits are.