Foreign Recovery Could Be a Tonic for UK's Sick Economy; ECONOMICS ANALYSIS

The Evening Standard (London, England), October 27, 2009 | Go to article overview

Foreign Recovery Could Be a Tonic for UK's Sick Economy; ECONOMICS ANALYSIS


Byline: Hugo Duncan

THE Government has long boasted that Britain is better placed to deal with the global recession than other major nations.

That claim is looking more and more hollow by the day.

Official figures last week showed the UK economy shrank another 0.4% in the third quarter of the year ( July, August and September) and has now been in recession for the last 18 months.

By contrast, France, Germany and Japan started growing again in April, and figures this week are expected to show the US returned to growth in July after 12 months of decline.

The story looks set to be the same for the whole of Europe when it publishes its figures next month.

Economists are forecasting growth of between 3% and 4% in the US in the third quarter.

The numbers -- published in Washington on Thursday -- are presented on an annualised basis across The Pond, so a growth figure of 3% to 4% in the US is roughly equivalent to a number of 0.75% to 1% in the UK.

Of course, forecasters do get it wrong, just as they did so spectacularly here last week, but if they are right the debt-ridden, financial sector-obsessed UK will be left languishing behind the rest of the developed world in terms of recovery.

If they are not right, and the US economy is far weaker than hoped, shares around the world will look horribly over priced.

Much of the growth is likely to come from businesses ramping up production following record output cuts in the second quarter.

Americans also flocked to buy cars and houses to take advantage of temporary US government programmes such as the "cash-forclunkers" scrappage scheme, which ended during the quarter, and tax breaks for first-time buyers, which expire next month.

Joe Brusuelas, a director at Moody's in Pennsylvania, said: "The recovery is off to a decent but unspectacular start."

This may not mean the US recession is "officially" over.

Whereas recession in the UK is defined as two consecutive quarters of economic decline, in the US a panel of experts at the National Bureau of Economic Research act as the official arbiter and take into account things like unemployment.

Cary Leahey, senior economist at research firm Decision Economics, said: "The average American doesn't think you have recovery until the unemployment rate comes down.

This is not really a meaningful recovery."

He is predicting growth of 3.9% in the third quarter but only 2% in the fourth as the recovery stalls.

Roger Farmer, chairman of the economics department at the University of California, said: "I think the economy is fragile and the recovery could easily fizzle out. …

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