Don’t blame the UK’s stagnation on the Eurozone – the evidence doesn’t stack up
12:47 pm - August 1st 2013
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One constant theme in the Chancellor’s speeches has been that his austerity would be working wonderfully if it wasn’t for those pesky foreigners. There’s one problem with this: if they are holding us back, how come they’re mostly doing better than us?
There’s no mystery about why the Chancellor is looking for scapegoats.
Last week’s preliminary estimate for GDP (the one that showed 0.6% growth since the previous quarter) revealed that, between the second quarter of 2010 and the second quarter of 2013, the economy had grown a magnificent 2.1% – about a quarter of the trend rate.
The chart below shows GDP growth rates (comparing each quarter with the same quarter a year before) and the government ought to be very embarrassed by it.
Within six months of the government’s election, our economic growth had been cut off, with a downward trend that may (let’s hope) have come to an end in the most recent figures:
So you can understand why Mr. Osborne would like us to believe that it would have been higher if it hadn’t been for depressed European and US economies, making it difficult for us to export to them.
And that is the line he has stuck to.
A year ago, Mr. Osborne told us he was exasperated at the failure of Eurozone government to sort out their problems, which “would do more than anything else to give our economy a boost.”
Delivering the Autumn Statement, he told us “we face a multitude of problems from abroad. The US fiscal cliff, the slowing growth in China. Above all the eurozone, now in recession.”
By the time he got to this year’s Budget in March, he worried that the problems Cyprus was experiencing showed that “the crisis is not over, and the situation remains very worrying.” In June, it still wasn’t over, and his speech on the Spending Review returned to the theme:
But while we’ve been acting, the challenges from abroad have grown. A eurozone in crisis. Rising oil prices. The damage from our banking crisis worse than anyone feared. And the truth is Mr. Speaker, we have to deal with the world as it is, not as we wish it to be. So this country has to continue to make savings.
And, if those Eurozone economies and the USA had been growing more slowly than us, there might have been something to that line. But that isn’t the case. In the table below I’ve used OECD data (*) for GDP in the second quarter of 2010 and the first quarter of 2013 (there is no Q2 2013 data for most countries) and calculated how much it has grown or shrunk for the UK, all the Eurozone countries the OECD covers and the USA.
If slow growth abroad is holding us back, why have our first, second and third largest export markets grown faster than us? I’ve also included a column giving each country’s share of UK exports in 2011 (the most recent I could find, using HMRC data).
You can see from this that, while there is a group of Eurozone countries that has done worse than us, they only account for 15% of UK exports.
Problems in the Eurozone won’t have helped the UK’s recovery, but we can’t make it the main explanation for our stagnant economy.
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Richard is an regular contributor. He is the TUC’s Senior Policy Officer covering social security, tax credits and labour market issues.
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Story Filed Under: Blog ,Economy ,Europe ,Foreign affairs
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Reader comments
You mean everything the Maily Telegraph’s been telling me about how Britain is enormously outstripping the eurozone economically and how the euro will be abandoned sometime this afternoon, following a few hours later by the end of the EU amid the breakdown of society across the continent, might not actually be true? Who’d have thought it?
thanks, interesting article.
A piece in The Economist in early July also pointed out the far better performance recently of France and Germany.
Of course the Tories’ solution is to stoke up already bubble-level house prices. And we’re supposed to be grateful we’re not in the Eurozone?
Your Q2-2010 to Q1-2013 covers a multitude of sins. France’s economy grew a little bit over that period but in 2012 stagnated and has contracted in 2013: http://www.insee.fr/en/themes/info-rapide.asp?id=26.
Slovakia and Estonia are still developing economies. They aren’t at the same level as us, so, of course, they are going to catch up faster unless they were doing something really awful. The economy isn’t just about growth, its also about levels and we are at a high level which makes growth more uneven.
It also should be obvious that we don’t need everyone in the world to be screwed for us to be taking a hit. If some major trading partners are doing badly, that will reflect on our own sales.
“A piece in The Economist in early July also pointed out the far better performance recently of France and Germany. ”
Try this clinical assessment of Britain’s economy in a recent issue of The Economist:
On a wing and a credit card
http://www.economist.com/news/britain/21580478-britain-growing-againbut-perplexing-and-unsustainable-ways-wing-and-credit-card
More worrying insights into Britain’s economy from The Economist of 6 July: Let’s try to catch up with Mali
GOOD economic news has begun to fall on Britain like drops of rain in the midst of a drought. The country is parched: revisions to GDP estimates released last week suggest that output is still 3.9% lower than its 2008 peak, a worse performance than any other G20 country except Italy. As confidence returns, it seems almost impolite to point out that the British economy still has a sickly core of weak investment, productivity and wages, and that hard policy decisions lie ahead.
http://www.economist.com/news/leaders/21580466-why-being-159th-best-investment-no-way-country-sustain-recovery-lets-try
The Eurozone has been in recession for the last 18 months. This accounts for going on half of our trade.
It has also been a big reason behind the BoE forcing banks to hold so much extra capital, thus starving businesses of vital credit.
But, no, you’re right. That has had no effect. It’s all because we’re only raising state spending marginally in real terms. That’s the only thing that can ever negatively effect our economy.
All you kind folks need-to-know!
Hebrew Gematria words adding to 33(Pyramid Ape-X)
Zionists+Elites = Big Bruvver eg Pyramid+Apex+eye on (worthless bog roll)dollar note reverse
GREEN (Greenest Govt ever!
VEX
(Elite’s ‘vexation’ of population, with false austerity
– whilst passing tax cuts to uber rich, forcing huge burdens on poor by not regulating energy costs, rents and Govt officials Hell-Bent protecting their property empires by throwing Billions £££’s we supposedly ain’t got at housing.
Constant lunatic laws introduced (many U-turned, the false Leveson Mockery Trial etc etc
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