The seasons, they are a-changing. I can smell it in the air. September is upon us and in the northern hemisphere the evenings are getting darker earlier. The wind has a fresh bite about it. The lazy hazy days of summer are rapidly giving way to a chill. Colder times are upon us. Unfortunately I am not just talking about the weather.
Economically too there is a slow chill descending across large parts of the developed world. The green shoots of recovery, which sprouted in the first part of this year, are now browning off, and some have downright withered in the soil.
The revision downwards of US economic growth in the 2nd quarter to an annualised 1.6% coupled with fed Chairman Ben Bernanke’s admission that the US economy had slowed “to a pace somewhat weaker” than the Fed had projected has rightly given cause for concern. Economic numbers coming from the United States are worrying. Existing and New home sales numbers look like a hurricane has swept through them. Consumer confidence data are well off their recent higher levels. Hanging over the entire US economy is an unemployment rate stubbornly stuck at 9.5%. The only reason that number isn’t higher is because of, in Bernanke’s words, “reduced labor force participation.” In other words, many job seekers have given up looking for work.
The European situation is no better. France has revised downwards its economic growth estimates for next year from 2.5% to 2%. Ireland’s debt rating has been downgraded and even the UK’s better GDP numbers are the result of construction and inventory rebuild and are unlikely to survive the blast of cold budgetary air still to come this winter. Only Germany motors on with second quarter growth of 2.2% powered by rising exports. But even Germany will falter if its major export markets start to stagnate. The EU Economics Commissioner Olli Rehn’s recent description of the recovery as “robust”, might be on the optimistic side.
The reality of this transatlantic recovery is starting to become all too clear. As Nobel Prize winner Paul Krugman puts it in the New York Times “this isn’t a recovery in any sense that matters.” Yes the numbers may show that the developed economies are growing, but to ordinary people, other than the statisticians, it will feel like we are still stuck in what Alan Greenspan recently called a “quasi recovery.”
All of this wouldn’t matter too much if the outlook were rosy; but it isn’t. All the major economies in the Northern Hemisphere are introducing tremendous austerity measures to drive down deficits. France has said it will do “whatever it takes” to cut its deficit. In the UK a spending review is underway, with possible cuts of up to 25% forecast in most government departments. It’s not surprising the public has been frightened out of its wits and has clamped down on spending. Warnings of economic hard times ahead are turning into self fulfilling prophecies.
As the northern winter arrives, so those of you in the Southern Hemisphere have the hot, humid days of summer to look forward to. Of course, South East Asia, India, and China are by far the most economically hot at the moment with growth rates averaging 5% this year and next. Even here though pockets of cool air are blowing gusty gales.
China’s slowdown continues, and any shift in policy as the government slowly tightens the monetary screw will have massive ripple effects across continents and oceans. Japan’s deflation is tightening its grip on the world’s second or third largest economy (depending on which survey you read on any given day.) Prices have fallen for the 17th successive month in Japan, and with debt to GDP levels heading towards 200% Tokyo has few policy options left, as became clear this week with the poor reception given to stimulus measures announced by both the Bank of Japan and the Finance Ministry.
Even Australia, which has shone as a ray of economic sunshine in the southern hemisphere is now well and truly enmeshed in a political crisis around a hung parliament. The talk in Sydney is all about whether or not the city’s property bubble is about to burst. Too much delay in forming a government could eventually take its toll on the economy.
There are some rays of sunshine still peaking through. But you have to be quick to spot them, and they are usually overwhelmed by the rainy showers elsewhere.
I normally welcome the season’s change; after all each season brings its own magic and wonder. I try never to forget that you can only enjoy the good weather when you have learned to appreciate the bad. I am not sure I can apply this to the economic outlook. The economic season is a changing. Get your brolly.
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Richard Quest is a CNN correspondent based in London, host of the weekday one-hour program “Quest Means Business”. For program highlights and more, go to www.cnn.com/qmb