What will be the impact of slower growth?
Growth is slowing down across the globe, this spells gloom for the government’s economic strategy. Today the OECD published their Composite Leading Indicators for industrialised and large emerging economies, showing the global economy performing under par. The CLIs are designed to give 6 months’ advance notice of turning points in the business cycle, by measuring whether an economy is growing faster or slower than its long-term trend. The UK economy has been classified as in a “slowdown” for some time, and last month the Indicators suggested “possible peaks” for that the OECD area as a whole, the seven largest economies and the USA.
In this month’s figures, the CLIs for Canada, France, Germany, Italy, the United Kingdom, Brazil, China and India point “more strongly to a slowdown in economic activity. The CLIs for the United States and Russia are now also pointing more clearly to a slowdown in economic activity than in last month’s assessment.” In fact, of the large economies the OECD covers in its monthly report, only Japan’s is not classified as in a slowdown.
CLIs are designed so that a figure above 100 indicates above trend growth; the UK’s and most other economies’ CLIs are still above 100, but the key issue is the direction in which they are moving. This is unmistakable:
This isn’t just confirmation that the UK recovery has stalled. As I’ve mentioned before, the UK’s economic strategy is nothing without export-led growth and this depends on other countries’ success in maintaining their recoveries.
Just to be clear: the OECD indicators would be bad news even if this country were following a different strategy; a recovery that’s confined to a single country is very unlikely. But they do show that there’s something wrong with the global consensus on austerity. George Osborne regularly reminds us that the rest of Europe, the OECD and the IMF agree with his strategy (though the latter two seem less and less confident about this) but days like today make this seem like the sort of consensus you find in the graveyard.