Don’t blame stagnation on the Eurozone
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. It shows that, from 2009, GDP growth was recovering very strongly but within six months of the government’s election it 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.
(*) GDP, expenditure approach, millions of national currency, chained volume estimates, national reference year, quarterly levels, seasonally adjusted