The government bung to investors that was the Royal Mail share launch has fed the mood of festivity in the City of London. Add to this the fact that the International Monetary Fund (IMF) has raised its growth projections for the British economy and you can understand why the smirk on George Osborne’s face is growing.
But if we take a look at the world economy, the picture is quite a lot grimmer. Thus, while expressing greater optimism about British prospects, the IMF cut its forecasts for global economic growth this year and next.
This isn’t primarily because of the uncertainty caused by the standoff between Barack Obama and the Republicans in Congress in the United States.
The fundamental reason for this change lies in the “emerging market economies” of the Global South. China in particular has been the main force for growth in the world economy since the slump of 2008-9.
But this came at the price of a huge programme of state-underwritten borrowing and investment that has now created a property bubble and pushed up inflation.
The Chinese government reacted by taking its foot off the accelerator. This has not merely slowed China down but has had ripple effects on those supplying it.
Meanwhile, the US government’s programme of quantitative easing (QE) has pumped more than £53 billion of new money into the financial system every month. Much of this money then flowed into countries such as Brazil and Turkey, seeking to profit from their booms.
In the summer, the Federal Reserve Board floated the idea that it would soon start “tapering”—gradually reducing—QE. The financial markets reacted as if this had already happened, pushing up interest rates and pulling money out of the “emerging market” economies.
So what has been for the past four years the most dynamic part of the world economy is slowing down. The IMF hopes that this will be compensated for by a speedup in the growth rates of the advanced economies. Don’t hold your breath.
Martin Wolf of the Financial Times recently expressed scepticism about “monetary activism”—by which he means QE and its counterparts in Japan, Britain, and the eurozone.
He wrote, “What then has all this monetary activism bought? Disappointment. Of the six largest high-income economies, only two—the US and Germany—were bigger in the second quarter of 2013 than at their pre-crisis peaks five years before: the US economy was 5 percent bigger, Germany’s 2 percent. The French economy was back to its starting point while the UK’s was some 3 percent smaller. Crisis-hit Italy’s economy had shrunk by 9 percent.
“The combination of aggressive monetary policy with slow growth shows how weak these economies continue to be, despite the healing of the financial sector, corrections in property prices and decline in private indebtedness.
“Nor is this weakness expected to disappear soon.”
The electronic equivalent of printing vast amounts of money may have prevented economic collapse, but it has not kickstarted the advanced capitalist countries into a new upswing.
The weaker parts of the eurozone are stuck in economic conditions last seen during the Great Depression of the 1930s.
The region’s banking system is still broken—according to a recent report, small and medium enterprises in countries such as Ireland and Spain are being starved of credit.
In Britain the signs of revival are strongest in the housing and stock markets—in other words, it looks as if the engine of financial speculation is powering up again. A feature in the Financial Times on Friday last week announced, “Feelgood factor returns to the City of London”.
Interestingly, the detail of the article didn’t support the headline. Mortgage approvals last year were 610,000, compared to 1.4 million in 2006. Financial services in the City employ 255,000 people, nearly 100,000 less than in 2008. Before the Royal Mail float there had been 53 initial public offerings worth just over £5 billion this year, way down from the 2006 peak of 298 worth over £35 billion.
Capitalism may be beginning to recover in the advanced economies, but it is still a badly wounded beast.