The future course of the British and the world economies are shrouded in obscurity. But figures released last week give us a proper measure of the magnitude of what has already happened.
The National Institute for Economic and Social Research (NIESR) released its estimate for Britain’s Gross Domestic Product (GDP). It noted, “GDP fell by 4.8 percent in 2009. This is a bigger fall than in any year of the Great Depression and is Britain’s biggest contraction since 1921…
“The broader picture of the depression is that output fell sharply for 12 months until March and has not changed very much since then, although evidence of a recovery is starting to emerge.”
In other words, the British economy shrank more last year than it did in any one year of the Great Depression of the 1930s.
Other advanced capitalist economies have also suffered extremely badly in the present crisis. In Germany, for example, GDP fell by 5 percent in 2009, five times the contraction in 1975, until now the worst year for the German economy since the Second World War.
The NIESR claims that the recovery has started, but it has been announcing this for months. So far it’s been better at measuring the past than predicting the future.
The figures for industrial production in November hardly suggest the recession is over. According to the Financial Times newspaper, “Manufacturing, the largest and single most important element of industrial production, was flat for the second consecutive month, and some economists expressed surprise that activity had not expanded as suggested by several surveys.”
The paper reports that Alan Clarke, an economist at French bank BNP Paribas, is worried about how manufacturing will fare once stimulus measures are withdrawn.
He said, “If manufacturing output can’t expand when we have masses of stimulus (currency weakening, loose monetary policy, the unwind of destocking, a rebound in overseas demand etc), then when can it?”
Once again, the picture seems similar in Germany, the power-house of the eurozone.
Though the German economy is supposed to have come out of recession in the second quarter of 2009, the Federal Statistical Office estimates that it stagnated during the last three months.
Some of the measures that governments introduced to stimulate their economies in the wake of the financial crash in 2008 have already been withdrawn – for example, the German “cash-for-clunkers” scheme to subsidise car sales.
Britain’s return to the old, higher level of VAT at the beginning of 2010 may help to explain the burst of consumer spending in the Christmas sales. But the big retail chains are hardly celebrating.
Terry Duddy, chief executive of Home Retail, which owns Homebase and Argos, said, according to the Financial Times, “sales growth would be ‘hard to come by’ for the sector in 2010… retailers would have to beat 2009 figures that had been aided by interest rate cuts and by capacity going out of the industry following the demise of some big high street names such as Woolworths…
“Karen Howland, an analyst at Barclays Capital, said… trading had been so bad in the run-up to Christmas 2008 that many retailers’ sales in the festive period of 2009 were still down on 2007 levels, even though they showed a year-on-year increase.”
In other words, despite the Herculean efforts of the British state and its counterparts elsewhere, such economic recovery as can be seen is extremely feeble.
This picture isn’t universal. China is powering away, overtaking Germany as the world’s biggest exporter, but on the basis of its own mammoth stimulus. The Chinese government estimates that last year bank loans more than doubled to a mind-bending $1,405 billion.
But all this credit is helping to inflate yet another financial bubble – and prepare the way for another bust. What impact will this have on an already weakened world economy?