Relying on GDP to decide if we are in a recession is silly, the unemployment rate should be the measureIn the face of the bushfire and the coronavirus, the Reserve Bank has taken a fairly upbeat view of the economy. When announcing that the cash rate would remain at 0.75%, the RBA suggested that the bushfires and the coronavirus would “temporarily weigh on domestic growth” but that overall things were doing OK. With luck this will be the case, but given the speed of events we should make sure we do not wait for GDP growth to determine whether or not we are likely to have a recession.To be fair to the RBA, the central bank can hardly come out and say things are stuffed and a recession is on the way – that would be a self-fulfilling prophecy.Related: Bushfires and the coronavirus will hit Australia's economy – but they won't knock it out | Greg Jericho Continue reading...

Rolling coverage of economics, business and markets as UK services grows at fastest since September 2018

From carmakers to airlines and hotels, the impact of the outbreak is punishing firms worldwide

More clarity since election bolsters consumer spending and business investmentBritain’s economy rebounded in January as fading political uncertainty since Boris Johnson’s election victory helped service sector companies record the strongest upturn in activity since mid-2018.The services sector – which includes banking, insurance, restaurants and hotels – makes up about 80% of the economy. According to the latest snapshot from IHS Markit and the Chartered Institute of Procurement and Supply, business activity grew for the first time since August. Continue reading...

Reserve bank governor Philip Lowe says latest outbreak could wreak more economic damage than SarsThe coronavirus outbreak may further hurt an economy already suffering from bushfires and drought, the governor of the Reserve Bank says.In a speech to the National Press Club in Sydney, Philip Lowe said the RBA was closely monitoring the economic effect of the epidemic, which has killed more than 490 people.Related: Australians evacuated from Wuhan to New Zealand face 17,000km flight marathonRelated: Chinese students arriving in Sydney reportedly detained after coronavirus travel banRelated: Bushfires and the coronavirus will hit Australia's economy – but they won't knock it out | Greg Jericho Continue reading...

Spending and tax measures are in favour, but central banks’ monetary policy has a role to playWill the next recession be worse than you think? With the major central banks having little space for further interest-rate cuts, might the next cyclical downturn become a crash? In theory, fiscal policy can go far in filling the void. The past decade has seen a rise in fiscal evangelism among many economists and policymakers, and it is indeed likely that fiscal fine-tuning will be widely tested in the next downturn. Are they right?I am sceptical. Fiscal policy is far too politicised to substitute consistently for modern independent technocratic central banks, which until now have largely taken the lead in short-term stabilisation. Fiscal policy takes the lead in fundamental but hugely contentious issues – concerning growth, long-term stability and allocation – that need to be decided in a democratic fashion, at least in advanced economies. And yet academic depictions of fiscal policy as an objective technocratic tool often make one feel like we are living in an episode of the American television series The West Wing.Related: Politicians pander to the 'folksy' Midwest - but ignore the region's radical history | Jessa Crispin Continue reading...

Britain’s departure from the EU should be a glitch in world trade arrangements, and not the new normalBoris Johnson got not one but two wins last year on Brexit: a fresh withdrawal agreement with the European Union and an election victory that gave him an 80-seat majority in parliament. But while these events matter quite a bit for Mr Johnson and his political future, they did not make much of an impact on the British economy. Mr Johnson’s premiership rests on the nostalgia of Brexit; its true believers think they were better off in an imagined past, before Britain joined the European Community. They will keep backing the prime minister because he says that the trappings of that past can be restored, even without any economic benefit.That explains why a big part of the story of Brexit is about fishing, farming and factories. Before the UK joined the common market, manufacturing employed about a third of the workforce. That figure has now shrunk to less than a tenth. Farmers and fishermen, who voted enthusiastically for Brexit, make up a tiny proportion of national income – 0.6% and less than 0.1% respectively. Almost all of the rest of us are working in the service sector – which takes in everything from law firms and media companies to cabs and hairdressing. Work has become more precarious, but disposable income, in real terms, is roughly double what it was before we entered Europe. Continue reading...

Despite coronavirus concerns, share prices stabilise over hopes it can be containedFears that a coronavirus-inspired plunge in Chinese share prices would prompt a global selloff proved unfounded as investors in Europe and the US shrugged off the biggest fall in the Shanghai stock market in five years.Shares in London and New York rose – helping to reverse a part of last week’s falls – despite a drop of 9% at one stage in China’s main stock market index. Continue reading...

Sterling hit by tough talk on trade deal while investors count coronavirus cost

Reduced political uncertainty boosting optimism but growth remains slow, survey findsBritain’s manufacturing sector showed signs of stabilising last month to emerge from the longest downturn since the financial crisis, according to a survey.The monthly snapshot from IHS Markit and the Chartered Institute of Procurement and Supply, which is closely watched by the Treasury for early warning signals from the UK economy, showed that factory output remained steady in January after eight months of contraction. Continue reading...

How can the chancellor choose if he is for or against austerity if Boris Johnson himself doesn’t know how he wants to govern?Sajid Javid’s recent demand that government departments find a further 5% of cuts to their budgets reveals the confusion at the heart of Boris Johnson’s new administration. Before the election, Javid promised that austerity would end across all aspects of the state. Now he asks for more than £30bn of cuts – equivalent to around a quarter of the annual NHS budget. Those who warned that Javid’s promises could not be taken at face value feel vindicated.Witness Javid promising a decade of divergence from the EU only to row back in response to the howls of businessRelated: In order to survive as chancellor, Sajid Javid is having to adapt quickly | Katy Balls Continue reading...

Researchers found slowdown from the pre-2008 growth trends almost four times that of 1930sThe slowdown in Britain’s productivity growth over the last decade is the worst since the start of the Industrial Revolution 250 years ago, a dismal track record that is holding back gains in living standards across the country.Research from academics at the University of Sussex and Loughborough University shows that the productivity growth slowdown since the 2008 financial crisis is nearly twice as bad as the previous worst decade for efficiency gains, 1971-1981, and is unprecedented in more than two centuries. Continue reading...

David Hunter says we won’t be better off outside the EU, and John Dodds says the UK will lack economic cloutIs Larry Elliott the only economist apart from Patrick Minford who believes we are better off outside the EU (Why there are many reasons to be cheerful, 1 February)? His attempt to defend such a calamitous and damaging act flies in the face of virtually all respected expert analysis.Being part of the EU has civilised this country in a way that would have been otherwise unthinkable. Workers’ rights, environmental protection, social and regional development immediately come to mind. Does he truly believe a government led by Boris Johnson is going to unleash allegedly hidden potential and end the north-south divide by loosening state aid rules and taking other measures? More likely we’ll end up as the 51st US state or worse. Continue reading...

In looking the other way over the president’s corruption and lawbreaking, the Republican party has offered up its soul in exchange for powerThe line that best sums up last week’s Senate impeachment trial of Donald Trump probably comes from the lips of Omar Little, the stickup artist who robs drug dealers in HBO’s the Wire. “You come at the king,” warned Mr Little “you best not miss”. The truth came for Mr Trump but after the smoke cleared on Friday, the president was still standing. He remains in the Oval Office because almost every Republican senator preferred being in power to upholding the democratic principles upon which the US was founded. By Wednesday Mr Trump will have defied justice. He will then be free to continue his campaign of grievance and resentment safe in the knowledge that there is no genuine check on his executive overreach.The Grand Old Party has offered up its soul in exchange for Mr Trump’s gutting of environmental regulations, appointing conservative judges and cutting taxes for the rich. GOP representatives are repeatedly caught looking the other way over Mr Trump’s corruption, lawbreaking and manifest unfitness for office. They do so in part because if they did speak out, they risk being “primaried” by pro-Trump Republicans. Jeff Flake, an ex-Republican senator, thought “at least 35” former colleagues would vote to convict the president and have him removed from office if there were a secret vote. The warning, widely attributed to Edmund Burke, that “the only thing necessary for the triumph of evil is for good men to do nothing” ought to ring in their ears. Continue reading...

PM could turn loss of face over opposition to HS2 into a victory that ticks all the boxesDelays. The threat of sudden cancellation. Expensive. The story of HS2 is that of the modern rail traveller writ large. Now a decision on whether the £100bn-plus project should go ahead is imminent.The are no certainties in politics but despite the misgivings of Boris Johnson and his senior Downing Street advisers it looks as if the green signal will be given for the line connecting London with Manchester and Leeds.(January 1, 2009)Potential emissions Continue reading...

If the hit to their economies from the coronavirus is worse than feared, Britain’s closest neighbours could be in serious troubleThe focus was inevitably on Britain as the clock ticked down on Friday night towards the moment of departure from the European Union. How would the economy fare on the outside of the world’s biggest market in the years to come? What sort of trade deal with the EU would be cooked up in the scant time available for negotiations? How easy would it be to do a deal with the arch-protectionist Donald Trump?Those are all perfectly reasonable questions. But they are based on an assumption: that Britain is weak and doing badly, and the remaining 27 members of the EU are strong and doing well. That, most definitely, is not the case.Europe has never really recovered from the last crisis Continue reading...

As Boris Johnson steers a safe course, productivity stagnates and graduates are stuck in mundane jobsContentment rules in Britain’s boardrooms. That was clear from the surveys last month showing business confidence on the up.The Bank of England recognised the cheery mood in its latest review of the economy when it said the turnaround, though modest, was enough for the majority of its nine-strong interest rate-setting committee to abandon any thoughts of a cut in borrowing costs. Continue reading...

China, and the world, were already burdened by tariffs. Now, some say the coronavirus could undermine fragile growthWith tens of millions of Chinese people quarantined inside their cities and thousands of factories closed, it is already clear that the coronavirus is about to sideswipe the global economy.Last year’s tit-for-tat trade war between China and the US, which involved both sides slapping import tariffs on hundreds of billions of dollars’ worth of goods, knocked China’s already ailing GDP growth rate down to 6% in 2019 and helped depress global growth: it fell from 3.6% in 2018 to 3% last year.It is clear that unless a cure and a vaccination are found rapidly, the fragile recovery that we predict is at risk Continue reading...

Whitehall source says plans would ‘double the practical challenge at the border’Boris Johnson intends to impose full customs checks on all goods coming into the UK from the EU in a break with previous government policy, according to reports.“We are planning full checks on all EU imports – export declarations, security declarations, animal health checks and all supermarket goods to pass through border inspection posts,” the Daily Telegraph reported a senior Whitehall source as saying. “This will double the practical challenge at the border in January 2021.” Continue reading...

Brexit could further damage bloc’s economy, which grew just 0.1% in final quarter of 2019

Rolling coverage of the latest economic and financial news, as France’s economy contracts by 0.1% in the last quarter

Growth rate since joining EEC in 1973 has been slower than in decades before entryA new era has begun for the UK. As the outgoing governor of the Bank of England, Mark Carney, noted this week, Britain has entered a decade of potentially profound structural change.Those who mourn Britain’s departure from the EU are sure this fundamental change is going to be painful and detrimental. But there are those who see Brexit as an opportunity not a threat.Related: Michael Gove hails Brexit day with 'relief and delight'Does 31 January change anything? Continue reading...

Hard though it is to accept, as patriots we must wish Brexit a (partial) successBritain has not left Europe; it has just stepped into another room. Its European role has always been complex and ambivalent. “The desire for isolation, the knowledge that it is impossible – these are the two poles between which the needle of the British compass continues to waver.” The words of the historian RW Seton-Watson in a history of Britain in Europe published in 1937. True then, even more true now.We ex-remainers have consistently argued that Brexit will leave the UK weaker, poorer, more divided, less influential, less attractive to the rest of the world. Some evidence is already in. According to Bloomberg Economics, by the end of this year Brexit will have cost Britain some £200bn in lost economic growth – nearly as much (adjusted for inflation) as the country has paid in to the EU budget over the entire period of its membership since 1973.Related: Is uncertainty lifting now Brexit is finally happening? Experts debate the dataRelated: Scottish government wins vote to keep EU flag flying over Holyrood Continue reading...

Labour can outflank the Tories by rethinking the firm and who controls its surplus rather than just nationalising itIn 1970 Milton Friedman published his seminal “greed is good” essay in the New York Times magazine. In it the rightwing academic tarred managers who thought there were corporate responsibilities beyond profits as “unwitting puppets of the intellectual forces that have been undermining the basis of a free society”. Friedman’s view of shareholder primacy became the conventional wisdom, boosted by Margaret Thatcher and Ronald Reagan. Since 1979 the idea that only company owners are the rightful claimants of the fruits of the economy gained traction. Nowadays shareholders are the central actor in economic life. This has been a damaging and unwise road to take.Putting shareholders first means less cash for workers and other stakeholders, hampering efforts to tackle in-work poverty and climate change. While the UK’s largest listed companies have doubled in a decade the amount paid out to shareholders (a record £110bn last year), the average wage in November 2019, measured as weekly real pay, was lower than in February 2008. If the £110bn was divided up between the 5 million people employed by the FTSE 100 companies, each worker would receive £22,000 each. Continue reading...

Long-term economic forecast cut, dealing a blow to Boris Johnson on eve of EU withdrawalThe Bank of England has warned Boris Johnson on the eve of leaving the EU that his Brexit plan stands to drag down Britain’s economic potential, after voting to keep its key interest rate unchanged.Dealing a blow to the prime minister as he prepares for Britain’s formal withdrawal on Friday night after nearly half a century of EU membership, the central bank cut its long-term growth forecasts, warning that Johnson’s push for a rapid Brexit would inflict lasting economic damage. Continue reading...

Profits halve in final quarter as fears over global growth drag down oil and gas prices

Excessive faith in markets and scepticism of government won’t tackle the global crises we faceThis year marked the 50th anniversary of the World Economic Forum’s flagship meeting of the world’s business and political elites in Davos, Switzerland. Much has changed since my first Davos in 1995. Back then, there was euphoria over globalisation, hope for ex-communist countries’ transition to the market, and confidence that new technologies would open up fresh vistas from which all would benefit. Businesses, working with government, would lead the way.Today, with the world facing climate, environmental, and inequality crises, the mood is very different. Facebook, willing to provide a platform for mis-/disinformation and political manipulation, regardless of the consequences for democracy, has shown the dangers of a privately controlled monopolistic surveillance economy. Corporate leaders, and not just in the financial sector, have displayed remarkable moral turpitude.Related: What did we learn from Davos 2020? Continue reading...

Experts blame insecure employment, universal credit delays and Brexit uncertaintyThe number of people becoming financially insolvent in England and Wales jumped to a nine-year high in 2019 as the burden of increasing debt levels took its toll on low- and middle-income households.There were 122,181 personal insolvencies last year, an increase of 6% on 2018, and the highest annual total since 2010, according to figures from the government’s Insolvency Service. Continue reading...

Gulf widening between Bank and chancellor over UK’s post-Brexit prospects. Only time will tell who is wrongIn the run-up to the EU referendum in 2016 the Bank of England and the Treasury were as one in their belief that Brexit would be bad for the economy. Mark Carney, the Bank’s governor and George Osborne, the then chancellor, were seen by the leave camp as two principal architects of ”project fear”.Now that Britain is finally on the point of departure a gulf has opened up between the two institutions. The current chancellor, Sajid Javid, thinks it is possible for the economy to return to annual growth rates of a little under 3%, similar to those seen in the decade leading up to the financial crisis. The Bank is unconvinced and remains as downbeat about the impact of Brexit as it was three and a half years ago.Related: Bank of England leaves UK interest rates on hold and cuts growth forecasts – business live Continue reading...

Each month we look at key indicators to see what effect the Brexit process has had on growth, prosperity and trade

Confidence rising three and a half years after Brexit vote but tight timescale for trade deal could harm recovery

Two former members of Bank of England’s rate-setting committee on Britain’s economic prospects

Rolling coverage of the latest economic and financial news

A post-election bounce fuelled by the housing market means rate setters will seriously consider a rise

We get minimal support, writes Janet Kay, while Lucy Peake says that if kinship carers can’t continue, that risks a lot of children entering the care systemWhy is it that none of the recent articles about the potential crisis in numbers of children in care mention the many children who have narrowly avoided the care system because they have been diverted from one “broken system” to another (Looked-after children are falling through the cracks of a broken system, 24 January)? There are very many children in kinship care who would be boosting those alarming statistics if relatives and friends had not taken on their care.And yet kinship carers get no preparation or training, the assessment is brief and shallow in comparison to adoption assessments, and we are usually very unprepared for our role. We get minimal support (and sometimes none) throughout the often hasty placement process, and post-placement support is like hens’ teeth. Continue reading...

My aunt, Margaret Wolfson, who has died aged 98, was a pioneering female figure in development economics and a smasher of glass ceilings.Peggy, as she was known to her family, began her career as a civil servant at the Treasury in the late 1950s and was soon put forward to be the first British woman to join the World Bank in Washington. She was quickly promoted and sent to Guatemala, ensuring that loans for infrastructure projects were being used in the way that they should be. Continue reading...

Fears grow over global economic fallout with airline shares hit and commodity prices tumbling

Rolling coverage of the latest economic and financial news, as some Asia-Pacific markets continue to slide

MPs and academics lend their support to ambitious targets for moving away from conventional plastics towards compostable alternativesBinding targets to reduce plastic pollution outlined in the anticipated environment bill are a critical first step in making Britain a global leader. However, there remains an area that must be addressed urgently if we are to move to a truly circular economy.Film and flexible packaging amount to around 400,000 tonnes of plastic used in the UK per year, comprising 25% of all plastic packaging. However, just 4% is currently recycled and the new recycling strategy does not adequately address this challenge. These materials are extremely difficult to collect and process. Moreover, they often contain food, which makes them impossible to recycle in the plastic waste stream. Continue reading...

Jeremy Hillman responds to a report which said that David Malpass’s Davos snub has dashed hopes of a climate consensusIs the Guardian really arguing that leaders who don’t jet into Davos aren’t committed to poverty reduction and climate action (World Bank chief’s Davos snub dashes hopes of climate consensus, 23 January)?The World Bank Group (WBG) is taking concerted action to tackle global poverty and boost shared prosperity by delivering concrete results for the world’s poorest and most marginalised people, including broad-based and sustainable growth, jobs, debt transparency, rule of law, good governance, human capital and green financing. Continue reading...

Companies begin pulling staff from epicentre of outbreak or impose travel restrictionsFinancial markets around the world have been rocked as an exodus of foreign workers from China intensified fears over the impact of the coronavirus on the world’s second largest economy.Major global companies have begun pulling staff from the province of Hubei at the hear of the outbreak or imposed travel restrictions on staff across Asia, telling any workers who visited the region to stay at home.What is the virus causing illness in Wuhan? Continue reading...

What Davos didn’t face up to is that we can’t expect poor people to make all the sacrificesFor those perched at the top of the mountain, the view is perfectly clear. Climate change is the issue of the moment and has to be tackled without delay. Governments, companies and individuals are all going to have to adjust to the new reality.Anybody who is not with the agenda – for example, Donald Trump – is either mad or bad. There was a big US delegation to Davos last week but it found itself isolated – in public, at least – on the climate emergency. The annual meeting of the World Economic Forum found Greta Thunberg’s call to arms much more compelling. Continue reading...

The UK faces economic upheaval on a vast scale if it is not, after all, to pursue ‘Brexit in name only’One of the privileges of my trade is that the best seminars often take place in the best places. I no longer attend the Davos World Economic Forum but last weekend marked the 25th annual seminar for British and Italian journalists hosted by the Italian government in – well, Venice.Before I left, several people asked why I was going, because pictures of Venice under water had been flashed around the world. “Climate change, global warming” seemed to be the general verdict.The government’s own internal studies and analysis point to a severe threat from abandoning the single market Continue reading...

Trump is threatening retaliation if the UK plan becomes law. But taking a tough line may be the key to a global dealWhen US treasury secretary Steven Mnuchin threatens to impose tariffs on a country’s car industry if it taxes American tech giants, you are inclined to believe that he means it. “If people want to just arbitrarily put taxes on our digital companies,” he said, “we will consider arbitrarily putting taxes on car companies.”A trigger-happy White House, steeped in trade disputes with various economic competitors, needs little excuse for retaliation. So the British government’s plan to impose a 2% sales tax on the largest digital companies – ensnaring the likes of Google, Amazon, Facebook and Apple – provides all the excuse President Donald Trump needs. Continue reading...

Climate activists protest at the World Economic Forum, as Lagarde, Georgieva and Mnuchin discuss the economic outlook

The 2008 crash stripped the sheen off global capitalism. We’re still living with the effects

January’s stronger PMI data means Bank of England is more likely to hold rates next week

Rolling coverage of the third day of the World Economic Forum in Davos

Oil and travel shares slide amid fears outbreak could hit growth in second largest economy

Automation is a red herring. The wider environment of slowing growth explains low labor demand largely by itselfAn army of robots now scrub floors, grow microgreens and flip burgers. Due to advances in artificial intelligence, computers will supposedly take over much more of the service sector in the coming decade, including jobs in law, finance and medicine that require years of education and training.Related: Republicans have turned the impeachment trial into a dangerous sham | Andrew GawthorpeCountries with high levels of robotization are not necessarily the ones that have lost the most industrial jobsRelated: The Jeff Bezos hacking allegations destroy the myth of a new Saudi Arabia | David WearingAaron Benanav is a researcher in the social sciences at the University of Chicago. He is writing a book about the global history of unemployment. This is an abridged version of his New Left Review article on automation Continue reading...