Magazine article Public Finance

On Top of the World?

Magazine article Public Finance

On Top of the World?

Article excerpt

WE KNOW WHERE Chancellor George Osborne won't be buying hamburgers as he bums the midnight oil preparing his 2014 Budget - after the fuss following last year's spending review, the spinmeisters won't let his staff anywhere near upmarket Byron's.

But there are no prizes for guessing what's top of the No 11 iPod playlist. Happy days are here again, the American post-crash hit, is tune of the season in Downing Street. Cue some neat political shapeshifting. The Tories are borrowing a song from the era of Democrat FDR while Ed Miliband is channelling the other Roosevelt, Teddy. Though a Republican, he hammered the cartels and took the little guy's part against the corporations (his latest biography is said to be bedside reading for the Labour leader).

Not that it will provide much solace in the face of the figures in Osborne's red box. The numbers do indeed stand up the coalition's riff on UK recovery. Unemployment continues to fall - February even saw a spate of stories about employers having to push up pay rates to keep and attract staff; the British car industry reports surging sales; consumer confidence is high.

Measured against the eurozone's anaemic 1% projected growth this year, the UK's 2.4% looks rather impressive. According to the latest IMF World Outlook, it's barely less than the US (2.8%) and far better than Germany (1.6%), Japan (1.7%) or France (0.9%). Compared to most other advanced economies, we're walking tall.

As for looking the rest of the world right in the eye, that story is going to be harder to stand up. Just as the south and west coasts of England have been battered by gales that got going somewhere in the Pacific, so globalisation's post-2008 downside has been demonstrated by currency mayhem and deep angst over emerging markets. How many City wiseacres are currently cracking the one about emerging markets being markets you need to exit in an emergency?

Chancellors - and this was as true of Osborne's predecessors - tend to cite international economic conditions when they need a scapegoat, not to explain why a national economy is doing well. The Treasury knows UK growth can't rely on rising house prices and consumption, which bring more imports. But exports depend on resilient demand in countries with appreciating currencies; the collapse of the Turkish lira and the Indonesian rupiah, not to mention the Brazilian real, doesn't seem to bear that scenario out.

Brazil and Indonesia, of course, barely count as UK trading partners, compared to the rest of Europe. The trouble is, you can't walk tall if you are constantly stooping to slag off your nearest and dearest, particularly the eurozone where, though the eurosceptics don't like it, the UK does more than half its import and export trade.

France, for example, took 7.5% of UK exports in 2013, twice the proportion going to China. So why did the Conservative party chair, Grant Shapps, attack the government of François Hollande a few days before the Anglo-French summit, accusing it of taking France 'back into the dust'? In place of this cross-Channel sniping, a more honest response might have been to acknowledge that the UK, like France, lacks any kind of big idea for how an open, advanced economy dependent on a few vulnerable sectors for exports is to thrive as the world gropes its way forward, still dizzy from the effects of the 2008 crash.

The uneven nature of the way ahead is illustrated by the IMF's projections, which expect the world economy as a whole to grow by 3.7% in 2014, with emerging and developing economies forecast to grow on average by 5.1%. The latter percentage, in theory, could sound like the great opportunity extolled by David Cameron on last year's visit to the east. But take China (projected growth 7.5%) out of the graphs and the picture takes on many more tints of grey.

In Latin America recently, old habits have returned. Argentina and Venezuela contrive to turn themselves into basket cases once again; who would bet on Mexico when the state is collapsing (and the currency imploding)? …

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