Don't expect the next boom
Daffodils are readying themselves to flower just as the green shoots of economic recovery pop their heads above ground.
At least that’s the story we will hear for the next few weeks as economists meld China’s booming exports, Germany’s resurgent manufacturing sector and better than expected construction output figures in the UK into a tale of solid and sustained recovery. China’s exports, usually a solid indicator of growth, surged 25% in January from a year earlier. Imports jumped even more, by 28.8%.
Despite all this activity, the Chinese inflation rate slowed to 2%. German manufacturing contracted very slightly in January but output and new business grew. Markit’s purchasing managers’ index for the German manufacturing sector rose to 49.8 in January from 46.0 the previous month. This is below the 50 threshold that separates growth from contraction, but was widely seen as an indication that Europe’s largest economy is picking up after shrinking in the last quarter of 2012.
Likewise, the UK has enjoyed some green shoots. On Friday (8FEB), the Office for National Statistics reported a lift in construction output. A 0.9% rise in the fourth quarter of 2012 was the first increase since the second quarter of 2011, and larger than the 0.3% rise assumed in preliminary GDP calculations. Overall UK GDP fell 0.3% in the last quarter of 2012, according to the ONS’s first estimate.
Anyone who visits London will have little reason to doubt the construction output figures. There are cranes everywhere. The capital is also dotted with yawning gaps between office blocks in the City and West End filled with busy construction workers putting down foundations. Almost all the building is speculative office and retail space, with precious little housebuilding going on.
Britain is still exhausted, with inflation high and rising - crucially much faster than wages. The country is paying down monster debt, much of which still rests with banks that cannot lend. The list of negatives goes on for several pages. Construction also languishes well below its 2007 peak, which means it remains in the hole created by the financial crash and has yet to climb out.
For all the improved news about Germany, the country is not booming. The Organisation for Economic Co-operation and Development predicts it will grow by 0.5% in 2013, lower than the UK prediction for 0.7% growth, and that comes after Berlin’s 12-month struggle to reach 0.8% GDP growth in 2012. China grew by 7.8% last year, its lowest since the crash, and only just enough to stop per capita GDP from falling.
Even this increase was contested by several economists, who said it was implausible when a sharp slowdown in consumer spending and electricity usage were taken into account. They put China GDP growth last year at nearer to 4%. So the country needs a boost just to get back to the kind of growth that keeps a growing population happy. There was also a holiday season distortion in the figures.
Last year the Chinese lunar new year celebrations were in January. This year, factories and businesses will shut for several days in February. So the exports figures are not an exact like-for-like comparison. China can look forward to better exports to the US, which is recovering, and to many countries in the Asia region.
Europe, however, is not going to grow this year and Beijing has maintained its destabilising standoff with Japan over disputed islands in the South China Sea, which has knocked trade with its neighbour. So, as the Bank of England governor, Sir Mervyn King, is fond of saying, the recovery will continue to be bumpy while imbalances exist between countries and regions, and governments refuse to co-operate to spur growth.
Only the monstrous amounts of money stacked up in investment and pension funds can change the situation, but private investors are inherently conservative and only want to buy a sure-fire hit, or make the types of investments that paid off in the last boom. Which is where speculative office building in London hits the mark.