Competitiveness in Europe

The purpose of harmonised competitive indicators is to show changes in relative competitiveness of countries. They are are also consistent with the real effective exchange rates (EERs) of the euro. This shows the divergence in competitiveness between a country like Germany De (improved competitiveness) and other countries like Greece and Ireland which have seen higher …

Read more

UK External (Foreign) Debt

Readers Question: Is “national debt”  interchangeable with the term with “foreign debt”? National Debt represents the total amount the government owe the private sector. National debt builds up because the government spend more than they receive in tax. Foreign or External debt represents the amount a country (both public and private sector) owe to other …

Read more

An Olympic Bounce for the Economy?

The Olympics has definitely created a feel-good factor for the nation. This Olympic bounce should see a short-term improvement in consumer confidence and consumer spending. But, whether this will be sufficient to transform the UK’s long-term economic fortunes, is quite another matter. Whilst British athletes were setting world records and gaining record amounts of gold …

Read more

How much fiscal adjustment (austerity) have Eurozone economies pursued?

How much fiscal adjustment (austerity) have Eurozone economies pursued? Underlying Primary Budget Balance in selected Eurozone economies 2009 2010 2011 2012 2013 France -4.3 -3.4 -1.5 -0.5 1.3 Italy 0.3 1.4 1.6 4.5 6.2 Germany 0.8 -0.1 1.0 0.9 1.1 Greece -10.1 -4.2 0.4 3.2 5.5 Ireland -7.1 -4.7 -2.7 -0.8 0.9 Portugal -5.9 -5.1 …

Read more

Economic Legacy of London Olympics

london2012

As a keen cyclist, I went down to London last weekend to watch the Olympic road race. It was pretty exciting standing on the Fulham road watching the peleton go past. That part of London seemed pretty busy and nearby cafes were doing very well. However, in the centre of London, many shops and hotels have complained of lower than expected business – with many tourists and shoppers being put off by threats of traffic chaos.

Given forecasts of four hour traffic jams, it is unsurprising that so many stayed away. However, whilst some have sought to avoid London during the Olympics, there have also been a new wave of visitors, who will hopefully want to revisit a revitalised London in the future.

The economic legacy of London 2012 is going to be much more than the three week duration of the Olympics. However, given the last GDP statistics showing a shock 0.7% fall (partly blamed on Jubilee holiday) The government will be hoping that the Olympics gives the economy a boost – there are only so many times you can blame falling GDP statistics on bad weather and public holidays.

Feel Good Factor?

UK consumer confidence is near record low levels. After four years of recession, creating positive economic news has been difficult. It is possible a successful Olympics will help change consumer confidence and encourage economic activity. From a macro perspective, with a double dip recession the Olympics has come at a good time. The question is whether watching sporting success actually translates into consumer spending and investment. Despite the scale of the Olympics, there are still more important factors affecting economic confidence and growth.

However, I think that overall the Olympics will have a positive effect on economic spirits.

Read more

Will Cutting Government Spending Bring Economic Growth?

Readers Question: Will Cutting Public spending bring economic growth?Do Countries with lower government spending as a % of GDP have higher economic growth rates?

After recent data on -0.7% growth in Q2 2012, several experts offered suggestions for restoring economic growth to the UK.

In the Guadian, Sheila Lawlor suggested (link):

The UK’s output figures, which show a quarterly drop of 0.7%, are not surprising. Economies with big public spending to GDP ratios have difficulty growing.

But there is a solution, to cut public spending and embark on structural reform, proven as the sure path to growth. The evidence from a variety of economies shows that cutting public spending and structural reforms brings growth: Brazil since 1990, Ireland in the 1990s, Sweden from the 1990s.

Basically, the argument is cut government spending and the private sector will have the freedom to take over inefficient government spending and then we can enjoy rapid economic growth. Whilst some blame austerity measures for pushing UK into double-dip – this analysis suggests we just haven’t done enough austerity.

Firstly, it is possible to cut government spending and still enjoy economic growth and an improvement in economic growth. Lawlor could have pointed to Canada in the 1990s, which also enjoyed rapid growth – despite cutting government spending. However, these periods of cutting government spending usually have other factors to stimulate growth.

  • Countries have own exchange rate
  • Countries can pursue a loosening of monetary policy
  • Strong global growth, leading to higher demand for exports.

Cutting government spending in an economic boom can be absorbed. It is fine to cut spending – if the private sector have the opportunity to replace government demand.

Ireland’s cuts  in the 1990s were quite successful – helped by independent currency, strong export demand and loosening of monetary policy. But Irish austerity policies since 2008 have been a disaster for economic growth. The problem is that government spending cuts in the 2000s, have not led to the private sector taking the place of the government.

The idea that cutting government spending is the ‘sure’ path to economic growth hardly fits with the picture in Greece, Spain, Italy or Ireland in the past three years. I would have thought even the most optimistic austerian would see that cutting government spending doesn’t always lead to an economic miracle. (e.g. Spain crisis)

In the current climate, the private sector is unwilling to invest because it is uncertain there is the demand in the economy.

Therefore, cutting government spending in the current climate, is unlikely to cause ‘crowding in’ of the private sector.

It is not enough to just rely on supply side policies and strutural reforms, a key factor determining private sector investment is not just amounts of red tape – but is the demand there to buy the goods?

Read more

Double Dip Recession Deepens 2012

The UK economy contracted by a provisional -0.7% in Q2 2012. This is a much bigger decline than most analysts expected. It means more bad news for the UK economy, struggling to regain positive economic growth. The biggest falls in economic output occurred in sectors such as: Agriculture – 2% Mining -5.9% Manufacturing – 1.4% …

Read more

Can there be economic growth with zero inflation?

Readers Question: Can there be economic growth without an increase in the money supply? Can there be growth with zero inflation? There can be economic growth with zero inflation. This could occur if there was improvements in productivity, which caused lower costs and higher output at the same time. If you take a particular sector …

Read more

Item added to cart.
0 items - £0.00