Global Economics Weekly Brief
Real wages in the UK have been falling for 5 years now. Such an extended slump was unimaginable before the crisis and forecasters have been wrong-footed by the weakness of incomes following the recession. With inflation falling we had hoped that the squeeze would come to an end this year.
Instead poor productivity is pushing wages down and inflation is eroding spending power. 2013 is already shaping up for another big squeeze on wages. The UK is heading for more challenging times i.e. third recession since 2008! * Global Economic Outlook - see below.
UK Unemployment up but falling wages point to even more pain. Unemployment rose by 0.2ppts to stand at 7.9% for the three months to February 2013, meaning that 2.56 million people are out of work. Of these, over a third have been jobless for more than 12 months, showing how hard it is to escape long term unemployment. But it was very weak wage growth that should really grab your attention. Not only is average wage growth of 0.8% far below annual inflation of 2.8% y/y, but in the last six months wages have been falling in nominal terms as well. £9 a week lower than August might not sound like much, but when you multiply it by the 30 million people in work you get an annual hit to incomes of £14bn and that’s almost 1% of GDP. Low wages mean people spend less on everyday items and struggle to pay overhead bills, i.e. food, fuel, heating etc Also, cheap overseas labour are pushing wages down!
UK Female participation in the workforce. The Labour Force Survey also confirmed the changing composition of Britain’s workforce. The number of women out of work due to looking after the family or home is now 2 million, down from 3 million in the early 90’s. Those extra one million workers have given the UK economy a big boost, but it’s a boost that cannot continue indefinitely. Even with continued pressure on household incomes we’re unlikely to see another million women move into employment in this way. Lower wages for women that` need to work` are fuelling the change from male to female workers!
Inflation steady with MPC still split over more stimulus. Inflation remained stubbornly high in March with the CPI rate unchanged from February at 2.8%. However, many commentators, including the Bank of England, expect rising food, gas and electricity prices to push inflation over 3% this year. Yet for the third month in a row the monetary policy committee (MPC) was split on whether to add another £25bn to the current £375bn of quantitative easing. Whilst it voted 6-3 against more asset purchases, the committee was interested in exploring extensions to the Funding for Lending scheme. Who will pay for the QE in the future?
If Washington's fiscal mess was supposed to derail the US recovery the American people did not get the memo. Expectations were low after earlier surveys pointed to a slowdown, but Q1 industrial production was 3.5% higher than a year ago. Even that performance was put firmly in the shade by the continuing recovery of the housing market. New house starts were up 7.0% m/m and by a staggering 46.7% y/y. Other data showed that 'distressed sales' - where the owner has defaulted on the mortgage and the lender markets the house - continued to fall. As the stock of distressed properties runs down, more of the demand for housing will be met from newly constructed units, so the recovery has some way to run. The American recovery is mostly with more borrowed money to add to the present debt of $16+ trillion.
IMF review asks more questions of austerity as Fitch downgrades UK. The latest economic health-check from the IMF highlights a three speed recovery in the global economy. While emerging and developing markets are returning to robust growth, there is clear blue (or Atlantic grey) water between the US and the eurozone. But it was the Fund’s views on austerity which led to most discussion. The IMF is concerned that some governments might be pushing austerity too hard, given the weak growth environment. It thinks the UK falls into that category and will be asking the Chancellor to consider slowing austerity in response to poor growth. It was this poor growth, and its impact on the public finances, that led Fitch to join Moody’s in downgrading the UK from AAA to AA+. It concluded that UK did not merit the top rating given a higher debt profile and an austerity programme likely to last at least two parliaments. So borrowing more to gain growth is better, say the IMF! Who will pay for all this borrowing in the future? Just look at the Eurozone countries who have fallen into very high debt with no growth on advice from others! The IMF need to read history before giving advice!
A Reinhart and Rogoff bust up. Academia is full of debates about data quality, but the charge of “selective omissions” in the data of Reinhart and Rogoff’s influential paper was unusually fierce. Their research “Growth in a time of debt” found that average growth in countries with debt ratios above 90% fell from 2.8% to -0.1%. But now other academics have spotted errors. The critics claim that the actual results should have been 3.2% and 2.2%, with debt’s detrimental impact on growth being just 1% rather than nearly 3%. The original authors accept some of the corrections but dispute others. People make mistakes even at the highest levels, but it was only because Reinhart and Rogoff were so open with their data that the mistakes were spotted. I wish that could be said for all economic research, but according to a recent survey only 2% of papers share their data fully. Who should we believe?
* Global Economic Outlook for 2013 revealed - United Nations ...
10-Step Double-Dip Recession Survival Guide for Entrepreneurs - click on the connection below for comprehensive information.
Global Economic Crisis
The current financial crisis is the worst the world has seen since the Great Depression of the 1930s. For younger generations, accustomed to mild recessions of the new phase of globalization, the misery of the Great Depression is hitherto nothing more than a distant legend. However, the collapse of two Bear Stearns Hedge funds in summer of 2007 exposed what came to be known as the subprime mortgage crisis, reintroducing the world to an era of bank failures, a credit crunch, private defaults and massive layoffs. In the new, globalized world of closely interdependent economies, the crisis affected almost every part of the world, receiving extensive coverage in the international media. “In an Interconnected World, American Homeowner Woes Can Be Felt from Beijing to Rio de Janeiro,” observed the International Herald Tribune at the onset of the crisis. “Chinese Steelmakers Shiver, Indian Miners Catch Flu,” noted the Hindustan Times. “US and China Must Tame Imbalances Together,” suggested Yale Global, as the frenzied search for a solution continues around the globe. Global greed to expand at any cost is the major issue.
In this special report, Yale Global offers essential information on why the crisis started, how it affected the industries and consumers around the world, and what solutions have been proposed by experts and regulators across countries. Click on each title below for comprehensive information.
Causes of the Crisis
What exactly caused the crash
Evolution, Effects and Response
The worst crisis since the Great Depression
Solutions for the future
World Economic Outlook (WEO)
Coping with High Debt and Sluggish Growth - http://www.imf.org/external/pubs/ft/weo/2012/02/pdf/text.pdf
The World Economic Outlook (WEO) assesses the prospects for the global recovery in light of such risks as the ongoing euro area crisis and the "fiscal cliff" facing U.S. policymakers. Reducing the risks to the medium-term outlook implies reducing public debt in the major advanced economies, and Chapter 3 explores 100 years of history of dealing with public debt overhangs. In emerging market and developing economies, activity has been slowed by policy tightening in response to capacity constraints, weaker demand from advanced economies, and country-specific factors, but policy improvements have raised these economies' resilience to shocks, an issue explored in depth in Chapter 4.
Plus, the `Global Risks 2013 Report - Risk Cases and Resilience` - click on the left
What do you think about this?
Why do politicians/bankers/lenders ignore history? and yet history repeats itself several times because these people do not read! People need to read `The Rise and Fall of the Roman Empire` and then perhaps they will learn how to avoid repeating history.
What `all` governments and banks globally need to understand is about how to operate within financial budgets, please click on the image below;
Online Financial Training
We have another global crisis that needs urgent attention by skilled and experienced people who can do the job right!
Storm warning: As the European debt crisis spreads across the continent, the outlook for the single currency has never looked so grim. Financial markets fluctuated violently as fears that Italy, Spain and France now, plus Germany in the future will be dragged into the eurozone debt crisis triggered another day of turmoil for investors.
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