We aren’t going to export our way out of this mess
As Nicola shows in a new analysis, it will take a very long time for private sector jobs growth to make up for the jobs lost in the recession and the public sector jobs the coalition plans to scrap. As Connaught has shown, government cuts will hit private sector employment as well as public, and as I noted yesterday, the Bank of England’s agents report that business confidence has “ebbed”.
In addition, the National Institute for Economic and Social Research expects growth to slow in the second half of the year and this gloomy forecast was seconded yesterday by the Organisation for Economic Co-operation and Development, which forecast that quarter on quarter growth in the UK would slow from 4.9% in Q2 2010 to 2.7% in Q3 and 1.5% in Q4.
What is going to make up for this? The coalition have relied on the Office for Budget Responsibility’s employment forecasts. We have been sceptical from the outset: their expectation that 2 million jobs or more will be created over five years would require much better performance than in previous recoveries, and the jobs growth in those recoveries was concentrated in finance (perhaps not so likely this time) and the public sector.
We have also worried that the OBR’s forecasts for GDP show exports playing a positive role, with the net contribution to GDP from trade rising from -£30bn in 2009 to +£10bn in 2015. This is based on a forecast that GDP growth in UK export markets will steadily rise from 4.7% in 2011 to 6.6% in 2013, easing off slightly in 2014 and 2015.
In other words, demand everywhere else will partly make up for cuts in the public sector at home. That of course was the strategy of Ireland in the 1980s and Canada in the 1990s. But both countries were able to take advantage of the fact that demand was growing in their export markets – we are in a position where practically the whole of Europe is trying to recover by exporting to each other. We worried that the UK’s experience in previous recoveries was that our propensity for consuming imports recovered first of all, and yesterday’s trade figures confirmed how right we were: the total seasonally adjusted deficit in trade in goods and services in July was £4.9 billion, up from £3.9 billion in June. As the Financial Times noted (paywall) this deficit is a post-war record.
The outlook for the future contribution to be made by trade is no better than the current picture, with the OECD’s interim economic outlook declaring, “the pace of recovery could be slower than anticipated.” Purchasing managers’ indices in the US, Japan and the Euro Zone have all, after a substantial recovery, turned down again and the OECD believes that “business confidence has weakened” across the developed world.
There is still time for things to change, and business confidence can be volatile, but right now the coalition’s claims that private sector growth will make up for lost public sector jobs and return us to pre-recession levels of employment look extremely weak.