Archiv für die Kategorie „Lowering Growth Expectations“

Lowering Growth Expectations for the British Economy

Freitag, 10. August 2012

The Bank of England (BOE) has finally taken a more conservative position in managing public expectations of the British economy, by lowering its previous forecast of 0.8% growth for 2012 to zero. This also reflects the unexpected 0.7% contraction (subsequently revised upwards to a 0.5% contraction) in the second quarter of 2012 and its cautious view that the London Olympics would finally have only a small, positive impact on growth in the current third quarter. The Governor of the BOE has also stated that he does not know when growth will return to pre-financial crisis levels in the UK and that he cannot predict how events in the Euro-zone will affect demand for British exports or how business confidence will develop in the real economy.
Rachel Reeves, Shadow Chief Secretary to the Treasury, has predictably taken this as another opportunity for the Opposition Labour party to repeat that this was time for the Chancellor to admit that his deficit-reduction plans are not working, given that, despite the crisis in the Euro-zone, Britain is just one of two G20 countries in a double dip recession. To counter this argument, it is instructive then to compare the relative performance of the British economy with that of the two other leading European economies i.e. France and Germany.
In actual fact, the Bank of France has now joined the BOE in projecting a more pessimistic view of the French economy, warning that GDP would shrink by 0.1% in the current third quarter, after a similar reduction in the second quarter of 2012, and thereby technically predicting a second (double dip) recession as per the UK. This would also suggest a subsequent reduction in the current forecast of 0.3% growth for the French economy in 2012.
Even the German economy which has been performing resiliently since the Euro crisis in 2010, appears to be slowing down, with industrial production falling by 0.9% in June 2012. If this manufacturing slowdown continues into a German recession, this will be more due to the effects of a general slowing down in global growth, which is already impacting the British and French economies, rather than a reflection of the current policies of the individual governments.