The financial crisis: tell the panickers it’s all relative

All the press loves a crisis: it sells papers.  The Opposition loves a crisis:  it attributes it to the government’s failure — sometimes correctly, sometimes not.  The masochistic British in general are easily convinced by the right-wing tabloids and the rest of the Tory press, not to mention the CamerOsborne duo, that the UK is at the bottom of all the league tables, and heading rapidly for even lower places in them.  So here are some facts and figures from recent publications of all shapes and sizes.  I can’t vouch for any of them;  for all I know, they have all been invented.  But they’re perhaps better than nothing.  Or are they?  Anyway, here they are:

In the fourth quarter of 2008, nominal gross domestic product shrank at an annualised rate of 4 per cent in the UK, 4.2 percent in the eurozone, 4.6 per cent in Germany, 5.8 per cent in the US and 6.4 per cent in Japan. This, then, is a world of grossly deficient demand.
FT 11.4.09

The UK went into this recession with the second lowest level of debt of all the G7 rich nations; by next year it will have slipped to mid-table.
Guardian editorial 21 iv 09

The government’s much-criticised cut in VAT is working and has led to a big boost in consumer spending, according to a leading economics consultancy. The Centre for Economics and Business Research (CEBR) says that the cut, which took effect on 1 December 2008, has led to £2.1bn of extra sales.


Eric Hobsbawm’s assertions that the UK will suffer more in this recession because it has “stopped making things” and “put its money on becoming the global centre of financial services” do not stand scrutiny. The UK’s proportion of GDP based on manufacturing is around 13.6%… it is actually higher than France. Further, recent OECD figures published on show that countries which derive a higher proportion of GDP from manufacturing are faring worse in the downturn. Germany’s GDP is forecast to fall by 5.3% in 2009, Japan’s by 6.6%, the UK’s by 3.7%. Financial services accounts for around 10% of GDP in the UK, rising to 14% only when ancillary services are included — so manufacturing is just as important as finance as a contributor to the economy.
[Andrew Harris, letters, Guardian 15 April 09.]

The median pay increase in the private sector was about 3.8 per cent last year, significantly above the 2.8 per cent public sector equivalent, according to Incomes Data Services, a research organisation. [ FT 18-19 April 2009 p6]
(This is for the panickers who think public sector pay has been rocketing ahead of the suffering private sector out of control and has thereby precipitated the country’s bankruptcy.)

The IMF [predicted] that recession in the UK would be “quite severe”. The economy will shrink by 4.1% this year and continue to contract, by 0.4% in 2010, it said…. Britain is no longer the sick man of the G7. Several countries, including Germany and Japan, which until recently were thought to be escaping the worst of the credit crunch, are now expected to suffer deeper recessions than the UK. The IMF expects Germany’s GDP to shrink by 5.6% this year, and Japan’s export-dependent economy to contract by 6.2%.
[Heather Stewart, Guardian, 23 Apr 09, p.7.]

“UK net debt, which includes the cost of stabilising the banking system, will, as a share of GDP, increase from 59% this year, to 68% next, 74% in 2011-12, and 78% and 79% in 2013-14.” [Budget speech]
Public sector net debt is forecast to almost double over the next four years – from 43% at the end of 2008-09, to 79% in 2013-14. This will be the highest level of debt seen since the mid-1960s
[ Guardian p.5, 23 Apr 09]  (Emphasis added.)

Can Britain afford this recession, or are we, as forecast by the investment guru Jim Rogers, destined to become an Icelandic-style basket case? The one thing we can draw some comfort from is that Britain starts from a relatively low level of overall public debt compared with other G7 economies. Over the next few years, we’ll be catching up fast, but ignoring the banking liabilities, which are in any case largely matched by assets, public debt as a proportion of Gross Domestic Product should just about remain containable.
Even the International Monetary Fund, which is particularly gloomy about prospects for the UK economy, thinks British debt as a proportion of GDP will remain below that of Germany, Italy, France and the US, and get nowhere near that of Japan. Thanks in part to quantitative easing, there is no sign yet of any problems in financing these deficits. Investment appetite for government debt seems undiminished. What’s more, the increase in public debt is, in a sense, only compensating for the contraction of private credit.
[Independent, 20 March 09,]

France has a debt GDP ratio of 60%+ We are at 41% as at end of 2008. We are going to ramp that up over the coming years but just for reference we were at twice the 41% level in 1995. That’s what we did with the big budget surpluses during the celtic tiger – we paid down debt.
–   –   –   –   –
Quite right: the UK is currently 50% [debt-GDP ratio] and Germany is 64%, we could increase ours by 50% and still be lower than Germany in percentage terms. Also on unemployment, we are at 10%, Spain are at 15.5% and France are at 8.6%…

Net debt as a proportion of GDP soared to 49% – another record – and even excluding the impact of financial sector bailouts, still stood at 40.7%, the highest since June 1998(Emphasis added)
[Metro, 19 March 09,]

Credit ratings of many OECD countries’ government bonds could be hit before the end of the decade due to mounting pension costs – although the UK will fare relatively better than most, analysts at Standard & Poor’s (S&P), the ratings agency, say. […] The ratio of debt to GDP of a typical OECD country will rise to 139% by 2050 from 47% in 2010 if measures are not taken to tackle the cost of ageing, S&P said in a report. […] The worst affected countries with debt burdens exceeding 200% of GDP by 2050 would be France, Germany, Portugal, Greece, Poland and the Czech Republic…
[Publication: Pensions Week Date: Monday, April 5 2004 — < nb date]

PARIS, March 31 (Reuters) – France’s public sector debt stood at around 68 percent of gross domestic product at the end of 2008, Budget Minister Eric Woerth said on Tuesday. Speaking on LCI television, Woerth also said that France’s deficit will have hit around 3.4 percent of gross domestic product at the end of last year… Analysts have expected the figure to be in excess of the European Union’s debt to GDP ratio limit of 60 percent. (Reporting by Tamora Vidaillet)


If I’m going to be accused of cherry-picking highly selective quotations, I shall plead guilty without a tremor.  If told that other quotations could easily be assembled to make a diametrically opposite case, I shall cordially agree.  I just think my selection suggests that it could be (even) worse, and undoubtedly will be, but not necessarily only here.

Postscript:  The government deserves some credit (no pun intended) for resisting strong pressures for cuts in overseas development aid, says development economist Owen Barder[1], but the poorest countries, especially in Africa, with the least responsibility for this rich-country crisis, will suffer as a result of it much more than we will:

The UK Government has been vocal in resisting protectionism, and rightly so; but restricting the fiscal expansion to the domestic economy is also a form of economic nationalism.
I welcome the decision of the UK Government not to cut the aid budget today. But what I really wanted to see was the developing world getting a big part of the fiscal expansion that the Government announced today.

And in a comment over on the Oxfam blog, Owen adds:

I agree: kudos to the Government for holding the line when it would have been easy to cut the aid budget.
But what does it say about the state of our global community, and our aspirations for making it better, when almost nobody argues that at least part of the fiscal expansion should be spent abroad?
Between this financial year and next there is an increase in public spending of £30.2 billion. Could we not have spared a billion or two of that for the world’s poor?
Bad as things are in the UK, nobody there will starve to death as a result of this recession. Nobody will have to take their kid out of school. Here in Ethiopia, that is exactly what is going to happen.

Sobering thoughts.

[1] Acknowledgement:  are we by any chance related?  Yes.


2 Responses

  1. Tom Rawlinson says:

    It’s difficult to accept that manufacturing in the UK is healthy – looking around, one would think it had vanished. Look in the shops, almost nothing built in this country. As you say, manufacturing countries suffer in recession more than we do.

    On the other hand, I may be looking in the wrong places. If UK manufacturing was concentrated on arms then there’s no recession and we’re gearing the world up for a cull.

  1. 24 April, 2009

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