Published on 30 Jun 2009

Can green shoots survive outside the government greenhouse?

If there are green shoots appearing in the economy, then the slugs have started to munch them.
 
A shock fall of 2.4 per cent in the first quarter of 2009 is the worst quarter-on-quarter fall since 1958. The annual fall in the economy of  -4.9 per cent of GDP is the largest since records began in 1948.

In fact, have a look at the historical attempts (Labour Market Trends 2003 with the help of Thelma Leisner) to create annual GDP figures, and that number is the worst peacetime number since 1926 and 1931.

So in the year to March the economy was collapsing at the fastest peacetime rate for 75 years. Alongside those years it is basically the joint worst peacetime figure since 1900. If you are under the age of 77, you have never had it so bad.

No wonder the Chancellor was cautious in his confidence, and the Bank of England figures reticent over signs of a recovery in our interviews last month.

The cause was some changes to the way construction data is crunched and a reappraisal of the condition of the service sector of the economy. It represents a poor platform for sustained recovery.
 
But here is the paradox. It suggests that the hole we were in was much deeper than previously thought. It puts the Treasury forecast of a contraction of 3.5 per cent back in peril. Nonetheless, the evidence still remains of some sort of stabilisation after these figures, from April onwards.

Indeed the Chairman of the Financial Services Authority, Lord Turner, was moved to tell me today that ‘you can now talk about green shoots without being ridiculed’.
 
What all that shows is the remarkable power of the weaponry deployed by the Bank of England and Government in recent months. In a bizarre way the Government could choose to take some sort of credit from these figures. The unprecedented actions taken did put a floor under an economy that we now see was suffering a calamitous collapse.
 
The problem is that these actions were a sticking plaster and not a cure. They manifest themselves in a slightly false form of credit creation (state run banks offering 95 per cent mortgages etc) that surely can not really continue (that seemed to be the message from the Bank of England Deputy Governor Paul Tucker to bankers today).

Despite today’s number, there are green shoots. Unfortunately they have been incubated in a state-owned taxpayer funded hydroponic greenhouse.

It is far from certain that they can grow on their own.

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4 reader comments

  1. Anthony Martin says:

    Whether people like it or not, Capitalism without restraints on predation & domination, is a sure road of inflation to deflation. Only, the balloon blows smaller and weaker with each ebb & flow.
    Capitalism is the slow road to hell and, as each decade passes and, more people join the poor & powerless, the more the world becomes divided, full of hate, & revenge towards to corrupt rich.
    The figures out now are indicative of this decending rollercoaster.
    Shame on you spinners that try to put a positive spin on this mess.

  2. Dan Ehrlich says:

    Any green shoots are an illusion brought about by financial manipulation of the business establishment. The underlying truth remains: People are losing their jobs, homes and lifestyle. The fault is consumer demand and the free market.

    We just have to look at America to see where the EU is heading. There is no way the US economy can have a long term recovery as long as it depends on low wage economies for its goods.

    The idea of protective tariffs is a non starter, at least for now, since we are in bed with the low wage nations.

    With the world divided between consumer nations and producer nations, the consumer countries stand to take a much harder hit since they are falling from an elevated living standard. This is not to say the low wage producer nations won’t be hurt. China is already hurting.

    Where the end will be is anyone’s guess. However, at supermarkets throughout America. a class division in basic food stuff is being created, with cheaper products for the gradually impoverished masses and quality goods for the wealthier people such as the flippant Hollywood liberals.

  3. yusuf sidat says:

    “If you are under the age of 77, you have never had it so bad.”
    As i see it these day most people have TV,s, phones, internet, cars, homes ( own or council) and food. What we lack is contentment with what we have. The other thing we also have is greed as the bankers and MP,s have proved.

  4. Lára Hanna Einarsdóttir says:

    Hello, Mr. Islam,

    I’m an Icelandic blogger (among other things) and have been collecting data about the crash in Iceland for almost a year now.

    My bloglink is: http://larahanna.blog.is/blog/larahanna/
    and if you browse around you can get the gist of what it’s about, even though I write in Icelandic.

    Here is a list of the videos I’ve uploaded, about 1.200 of them, and that’s only a tiny part of my collection: http://larahanna.blog.is/blog/larahanna/video/8377/

    I would like to get in touch with you for a specific reason but have no emal address. Would you please email me at the address given wit this comment? I would be very thankful.

    Respectfully,
    Lára Hanna Einarsdóttir
    Iceland
    http://www.larahanna.blog.is

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