Downgrading the notion of economic recovery

After months of suspense, the verdict is in: Britain has suffered a double dip recession, after experiencing two consecutive quarters of economic contraction (0.2 per cent down in the first quarter of 2012, following a fall of 0.3 per cent in the last quarter of 2011).

Or, at least, the verdict may be in, depending on who is writing the commentary. The differences of opinion on the interpretation of the figures are considerable. The Financial Times (25/4/12) has helpfully put together a compendium of the views being expressed:

“A second consecutive drop in [gross domestic product] in the first quarter leaves the UK meeting the technical definition of recession….But we believe it is fairer to characterise the UK under-delivering on growth, rather than experiencing a double-dip recession.” (Allan Monks, an economist at JP Morgan).

On the other hand:

“Michael Saunders, an economist at Citigroup, said Britain was experiencing ‘the deepest recession and weakest recovery for 100 years…. It is now four years since real GDP peaked in the first quarter of 2008,’ he said, noting that the level of GDP at the end of the first quarter of 2012 stood 4.3 per cent below its pre-recession peak”.

The second of these interpretations is the more direct and simple interpretation of the figures and, indeed, it is not obvious what the difference is between under-delivering on growth and retardation in the rate of growth, which includes the possibility of negative growth. However, there are plenty of commentators who explicitly repudiate the figures, and refuse to take them as a basis of discussion at all. The most common argument is that GDP figures are susceptible to revision (which may not be complete for several years). Therefore, so the argument goes, worrying about a double dip recession, which may turn out not to have happened, distorts the discussion on where the economy is going. Even the Bank of England shares a degree of doubt about the picture painted by the ONS (Office of National Statistics – the body that produces figures on GDP). Since the MPC (the Monetary Policy Committee of the Bank of England) is the body that sets interest rates and determines the level of quantitative easing this is not a minor point.

Like many of the economic commentators, the MPC uses a range of indicators as well as historical information to guide its judgement on these questions; so, if it is not convinced by the ONS figures, then it seems that the British bourgeoisie is simply not sure of the dynamic of its economy at this stage. This, in itself stands in sharp contrast to the way that the economic situation was presented two years ago. It is instructive to compare the bourgeoisie’s discussion then with now.

The bourgeoisie’s expectations of recovery change downwards

At the end of 2010 the bourgeoisie was able to present the following figures for the recovery in the G8 countries (on an annualised basis): US: 3.0% growth in GDP; Germany: 4.1%; Russia: 4.5%; Japan: 2.4%; Canada: 3.0%; France: 1.6%; Italy: 1.3%; UK: 1.7%.

In addition China and India had not suffered a recession and had growth rates of 9.6% and 8.8% respectively.

This provided the context for the discussion of the recovery at that time – the word ‘Recovery’ was then always used with a definite article, to leave no one in doubt about the overall trajectory. Any glitch in the upward curve or any factor that looked unfavourable was treated as a difficulty with the recovery, rather than putting it in question.

And the figures from that period do look quite convincing, taken in themselves. Bourgeois commentators who suggested that there might be a second downturn were regarded as undermining confidence and therefore making a negative outcome a self-fulfilling prophecy (this argument is still deployed, even now).

According to the Financial Times, if the official figures from the ONS are accepted, Britain has just joined the list of countries that have experienced a double dip recession which includes Italy, Ireland, Spain and Portugal. The growth figures for France, Italy and Britain in the ‘good year’ of 2010 were by far the lowest: 1.6%, 1.3% and 1.7% respectively. So, it is not exactly surprising that Britain and Italy have already fallen into recession again (or else into a perspective of very low growth, as some commentators would prefer to put it). It is perhaps more surprising that France has not joined this company. As for Ireland, it was only a few weeks ago that the Financial Times leader referred to Ireland as the ‘poster boy’ for the policy of austerity, since it seemed to be succeeding in developing its export sector strongly as a basis for its eventual recovery.

But politicians are not interested in analysis or explanations, just someone else to blame. Shadow Chancellor Ed Balls has thrown off accusations that the Labour government might have played a role in the development of the economic crisis, but also accuses Cameron of making a “desperate attempt to blame the Eurozone for pushing Britain back into recession”.

While bourgeois politicians are no doubt disposed to blame foreigners for the economic crisis, as a useful get out clause, the reality is that Britain’s economic trajectory is interwoven with that of the Eurozone, and that the Eurozone looks more fragile as time passes. For example, the FT (24/4/12) reported a key development: “The (Dutch) government’s collapse after far-right politician Geert Wilders pulled out of budget talks threatens to move the political battle over austerity from Europe’s peripheral south to the heart of the Eurozone.”

The figures recently released for the Spanish economy, showing one in five people out of work and one in every two between the age of 18 and 25, were widely acknowledged to be as alarming as anything to come out of Greece.

Meanwhile, “In Ireland, the PMI [purchasing managers index] showed very slow growth, falling to 50.1 from 51.5 in March. In the Netherlands the index fell to 49 from 49.6 the previous month as new order declined. A ‘flash’ PMI for the Eurozone, released late last week, showed manufacturing activity in the troubled currency union falling to a 34-month low.” (Any number above 50 indicates growth in this context.)

Europe is screwed but aren’t the US and China doing OK?

On the other hand: “The US purchasing managers’ index recorded a surprise increase from 53.4 in March to 54.8 in April, the strongest since June 2011, assuaging fears of a ‘spring slowdown’ in the world’s largest economy….Meanwhile, the official Chinese manufacturing PMI rose to its highest in more than a year, from 53.1 in March. It was also China’s fifth consecutive month above the 50 level.”

The article in which this information is encapsulated is titled: ‘US and China data eases concerns’. Presumably it will not very effectively ease the concerns of anyone who happens to live in Europe, or indeed anywhere other than the US or China. However, the bourgeoisie do seem now to be contemplating a move towards ‘recovery’ confined essentially to these two countries, with Europe’s fate considered essentially peripheral to the issue:

“The robust numbers from the two world’s two largest economies will raise hopes that the global economy can shrug off the effects of a deepening downturn in Europe.” (from the same article about ‘easing concerns’)

If the alleged global trend towards economic ‘recovery’ has to be accomplished without reference to Europe, then we can see how restricted the bourgeoisie’s concept of economic recovery has become in two short years. In reality, their talk of recovery is no more than self-deception. Capitalism is a global system and it cannot ‘work’ in one or two areas of the globe while other of its vital organs cease to function.  

Hardin 3/5/12