Tuesday, 26 July 2011
GDP figures expose Osborne's economic ineptitude
GDP figures today show the economy grew by a pitiful 0.2% in Q2 of 2011, throwing the OBR's growth estimate way off course - meaning Osborne must now focus on growth (but more likely will announce more cuts to deal with an expanding deficit).
In advance of the formal announcement, commentators had been expecting GDP growth to be within -0.5% to 0.5%. This in itself tells a story. Low expectations reflect the failure of George Osborne's economic strategy - his cuts have suppressed growth, as well as causing the inevitable misery: pain without the gain.
All of this has been entirely foreseeable and predicted. Those on the left have rightly argued that unemployment is the main issue Osborne should be addressing, rather than his deficit obsession. Like my Nan used to tell me 'take care of the pennies and the pounds will look after themselves', a new maxim should be 'take care of unemployment and the deficit will take care of itself'.
Osborne's failure to create jobs and growth domestically is being compounded by the failures elsewhere in the world. The eurozone (always unviable IMO) is floundering as the reality of one monetary policy for such clearly different and divergent economies is made clear. Nevertheless there are some common truths for those countries most in crisis: the first being routine and endemic tax evasion and avoidance; the second being the deregulation of the finance sector; and the third, and least commented on, being an absence of manufacturing base in the economy.
This latter point is now being exacerbated by the growth of the BRIC countries (Brazil, Russia, India and China) particularly the latter. The effect on Europe and North America to the new reality of China as a major manufacturing economy (and the other three also catching up) is huge - and has the effect has been exacerbated in the US due to NAFTA, which had already decimated US manufacturing industry. In the UK, manufacturing has dropped by 9% since 2008 Q1.
With none of the three issues: tax justice, financial regulation and manufacturing policy at the heart of any western government's programme, the future economic prospects look bleak however today's GDP figures are spun.
Download the full ONS data and analysis
* Royal Wedding - a final word on the frippery ... in November 2010, the Telegraph reported that the Royal Wedding would boost the UK economy by as much as £620 million. When retail sales figures were published previously, and GDP figures today, the consensus switched to blaming the extra bank holiday for hitting the economy. The ONS today said "There were a number of special factors which may have affected economic activity in the second quarter, including the additional bank holiday for the royal wedding", but later says: "Sales in April may have been boosted by the royal wedding, before falling back in May". So the royal wedding as a special factor may have been a boost to the economy. Regardless, it's effect was minimal and Osborne's strategy is failing.
Update: and back to a serious point, good analysis of the GDP figures and reasons for UK's economic malaise by Unite General Secretary Len McCluskey on the Guardian website, "there is no plan for growth beyond an entirely dogmatic trust in the private sector. The possibilities of, for example, using the state's stake in major banks to drive investment are simply ignored."