I’ve been making a little mental list of ways in which this recession has turned out differently to that expected. Now that output is down 6% down on a year ago and we are very possibly emerging into a relatively sunny period of regrowth, it’s time to write those thoughts down. Here goes;
Unemployment – is still only 7.8%. Very tough I know on those without a job but markedly better than 9.5% in the USA. Professor David Blanchflower, a man who commands respect for going against the grain, challenging the BoE’s model and anticipating recession way before everyone else, earlier this year anticipated a peak of up to 4 million. Meanwhile, in most of Euroland, the picture is much worse. Ok, I know that all countries measure unemployment differently and there is no small amount of argument about the large numbers of Brits who are economically inactive but not drawing down benefits being included in the figures. Still, it has to be a surprise that unemployment has not risen as fast as in previous recessions, of a much lesser severity. Is this because of Britain’s greater labour market flexibility or the last decade’s huge increase in unsackable public sector employment or an intangible increase in social capital between employers and employees where pay cuts and part-time work have been substituted for redundancy?
A devalued currency will increase exports – the pound has dropped by about 25%, but unlike in past recessions, there has been no nascent spike in exports. This may be because the components that make up the UK’s manufactured goods are often imported and added to the decline in manufacturing industry over the last 10 years, what’s left of it, component assembly, doesn’t really get that much out of a cheaper exchange rate. Still, who wants to go into a recession with a strong and strengthening currency like Japan, currently on the verge of a double-dip?
Manufacturing – some of us, myself included, thought that this recession was a watershed moment – a peak for financial services and maybe a re-weighting of the economy back towards manufacturing. But manufacturing has had a much tougher time of it than expected – in fact, it pretty much fell off a cliff.
Financial Services – would have got completely clobbered if it hadn’t been for the bailout and there haven’t actually been that many job losses in that sector. Time – and lots of it – will be the judge of the bailout’s importance and effectiveness.