At the final lunch of 2011 we were treated to an insightful, if at times dispassionate, talk on the economic prospects for the UK by one of the foremost economic commentators of our times: Bronwyn Curtis, OBE - Head of HSBC Global Research.
Earlier in 2011 Bronwyn had spoken about the prospects of "a lost decade" which the eminent Martin Wolfe of the FT also has used in his economic commentaries.
The UK already has had 12 quarters of recession along with anaemic growth leading to the economy "bumping along the bottom". The last 7 recessions experienced by the USA had all been 5 quarters. With very low growth, GDP is still 4% below the 2007 peak in the UK, slightly ahead of the USA which is 5% below their peak and Europe at 6.2% below its peak. The recession developed as a result of debt in the private sector which now has moved to being a public sector debt problem.
Our speaker took us through a wide range of negative economic indicators for the developed world, including the more recent downgrades of anticipated growth from 2.3% pa to 1.4% pa. In contrast, growth forecasts for the emerging markets had slipped from 6.2% pa to 5.9% pa.
Why are these indicators so awful? This is a combination of: policy makers having to issue cheap paper whilst remaining highly leveraged; oil prices staying up as a result of emerging market growth leading to even greater tax on consumers and the fact that 50-60% of the UK’s and USA’s economies being consumer driven with 9-10% being unemployed. The UK can expect a further loss of 300,000-700,000 jobs in the public sector which will have been cut by 16% in real terms by 2016.
The conclusion Bronwyn offered us fitted the billing. We in the UK should grow old gracefully and accept we will be worse off, or, emigrate. Brett, like the speaker, an Australian ex pat, asked should we move to their home country. The response was we should learn Mandarin.
As some pulled their Christmas crackers during a lively Q&A on the prospects and implications of Europe consolidating or breaking up in part or whole (very hard to do and massively disruptive) others could not get in a festive mood. Given there appears to be a 50/50 prospect of 17 European countries having their credit ratings reduced within 90 days, 2012 is likely to offer little cheer. It was encouraging to hear our Spanish colleagues stressing the importance of strong links and economic ties with the UK for their country.
London Chapter treasurer John Dallimore, who persuaded Bronwyn to speak, made the observation in his opening remarks that perhaps the talk was 2 or 3 days early. How observant given the Cameron veto over the following weekend. We now wonder what will unfold in UK and Europe in the next 90 days and decade beyond. Where is growth to be found beyond China and the emerging markets? Answers, thoughts and observations welcome . . .
Mark Loveday
December 2011