The recovery is well grounded – except in France
The coming year looks like it will be a good one. At the start of each of the past five years, the economic scales have been tilted down, and the challenge has been to look for factors which might have tipped them back up. This year, the balance is reversed. The onus lies with the pessimists to prove their case. Not that there are any shortages on this score. For example, King Canute of Twickenham, aka Vince Cable, has solemnly commanded that house prices must stop rising, for fear of a new bubble.
The most pervasive negative myth, for it is indeed a myth, is that the current recovery is driven by consumer spending. Spending which is fuelled by more debt and lower savings, and is therefore not sustainable. This is simply untrue. In most Western economies, overall output, stopped falling at some point during 2009. Since then, the percentage increase in GDP has been more than that of consumer spending.
The latest official data relates to the third quarter of 2013. From the trough of the recession in 2009, GDP in American has grown by 10 per cent, and consumer spending by 8.9 per cent. In the UK, the figures are 5.2 and 3.5 per cent respectively. The same point applies to the main Eurozone economies. In Germany, output has risen 9.9 per cent and personal consumption is up by 4.8 per cent. In France the figures are 4.1 and 2.4 per cent.
The main driver of the recovery has been corporate investment. In the US, it has risen by 30 per cent since 2009 and in the UK by 19 per cent. The increase is only 12 per cent in Germany, but here there has also been a big rise in net exports.
It is France which is the basket case. And it is public spending which is their problem. In the national accounts, there is a category: ‘public sector consumption’. Basically, this is the cost of employing public sector workers, their salaries, pension contributions and so on. In America, spending on public sector consumption has actually fallen by 5 per cent since 2009. Over half a million net jobs have been cut from the public payroll. Yet total GDP has expanded by 10 per cent. In Britain, despite the rhetoric of cuts, public consumption has risen slightly, by 2.5 per cent, half the speed of the increase in GDP.
In France, public spending growth has outstripped GDP growth, rising by 5.3 per cent since 2009. Corporate investment has grown slightly faster, by 7.4 per cent compared to the 4.1 per cent figure for GDP. So since 2009, out of these four big economies, France has had the lowest GDP growth, the lowest growth in personal consumption, the lowest growth in corporate investment, and the highest growth in public spending.
Ed Miliband last year said President Hollande is ‘leading the debate in Europe to find that different way forward’. One of the safest predictions for 2014 is that he won’t be repeating the praise!
As Published in City AM on Wednesday 8th January 2013