BizResearch

Recession Britain: Findings From Economic & Social Research

The British economy was officially declared to be in a recession in January 2009, when the Office for National Statistics (ONS) announced that the preliminary estimate of GDP showed a fall of 1.5% in the last three months of 2008 after a 0.6% drop in the previous quarter.  Why has it happened now after more than a decade and a half of steady growth? When is the economy likely to turn around? How can policymakers respond most effectively, on a global scale as well as nationally? And what are the effects – both now and in the future – on jobs, on businesses and on people’s lives?

This report from the Economic and Social Research Council (ESRC) explores what can be learned from evidence on previous recessions: the three that Britain has experienced most recently – in the mid-1970s, the early 1980s and the early 1990s – as well as recessions elsewhere in the world, and the global recessionary period to which current times have often been compared, the 1930s. It aims to be a short statement of ‘what we know’ as well as an indication of ‘what we need to know’. For that future research agenda is of the utmost importance: as we emerge from the downturn, top-quality social science must remain a priority to help ensure the future prosperity of the nation

The report draws on analysis of a broad range of data sources and the work of numerous researchers and research institutions, many of them centres, programmes and individual scholars funded by the Economic and Social Research Council (ESRC). It also refers to some of the findings presented at a series of policy seminars and public discussion meetings on the recession, which the ESRC has hosted around the country during the first half of 2009.

It is tempting to use the experiences of previous recessions as a guide to the likely impact of the current recession. This report argues that given the severity of this recession – and its origins and continued problems in financial markets – the past may not necessarily be the best guide to the future. While research can reveal the ‘average’ impact of previous recessions on people’s jobs, businesses and daily lives, it is as valuable to explore differences between those experiences as to examine the similarities.

Click here to read the full report

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Economic Survey of the United Kingdom 2009

The OECD has just published the 2009 economic survey for the United Kingdom. The surveys are published every 1½-2 years, providing assessment and recommendations on the main economic challenges for each of the OECD countries.

Selected highlights from the survey

The United Kingdom, like most OECD economies, is experiencing a severe economic downturn, and there is enormous uncertainty about the macroeconomic outlook. Business investment will decline owing to the challenging prospects and tight financial conditions. While sterling has depreciated by around 20% in effective terms since 2007, exports will decline due to the sharp fall in external demand. However, imports are expected to fall faster meaning that net exports will contribute positively to growth.

House prices have fallen after an extended period of large increases which left many households over-extended. Financial conditions are tight, and the financial market crisis has threatened the stability of the financial system. External conditions are also highly unfavourable. The recovery is likely to be slow and unemployment is expected to climb significantly reaching close to 10% by 2010. Both monetary and fiscal policies have eased to cushion the severe downturn with the policy rate now at historically low levels and quantitative easing measures under way. The authorities have also moved quickly to introduce a wide range of measures to stabilise the financial system.

In the short term, the policy priority must be to further improve conditions in credit markets. This is essential for reviving the economy. Alongside this, policy should aim at damping the severity of the downturn and its impact, particularly on the labour market. Policy actions that could undermine longer-term objectives need to be avoided. Over the medium term, fiscal consolidation needs to be underpinned by an effective fiscal framework and financial market regulation and supervision needs to be overhauled. The financial crisis and its consequences are likely to lead to a permanent fall in the level of potential output. Therefore, measures to raise long-run living standards will have renewed importance.

The full report is available to current London Business School staff, students and faculty from SourceOECD which can be found on the A-z list of library databases via Portal

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Africa Competitiveness Report 2009

African businesses can become far more competitive, but African governments and their international partners will need to improve access to finance, resist pressure to erect trade barriers, upgrade infrastructure, improve healthcare and educational systems, and strengthen institutions. These are the main conclusions of the 2009 African Competitiveness Report released today by the World Economic Forum, the African Development Bank and the World Bank. Limited access to financial services remains a major obstacle for African enterprises, but underdeveloped infrastructure, limited healthcare and educational services, and poor institutional frameworks also make African countries less competitive in the global marketplace. The report also points to a number of success stories in the region that highlight steps countries can take to improve the business environment.  The report highlights two short-term and three longer term policy themes for improving the competitiveness of African economies.

The two short-term themes are:

Increasing access to finance through market-enabling policies: Africa’s financial systems have been deepening and broadening in recent years, but the current global crisis threatens to reverse this trend and undermine recent progress. It is now even more important to upgrade the necessary frameworks for sound, efficient and inclusive financial systems

Keeping markets open to trade: Protectionist forces are emerging in response to the global economic crisis, yet, such measures will further reduce demand and restrict growth. Africa’s leaders must resist domestic political pressures to erect trade barriers that would make the region’s recovery even more difficult

The three longer term themes are:

• Infrastructure remains one of the top constraints to businesses in Africa.
• Inefficient basic education and healthcare systems constrain Africa’s productive potential.
• More examples of good governance and strong and visionary leadership are needed.

The full report can be downloaded for free from the World Economic Forum website

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Global Financial Stability Report April 2009

The April issue of the Global Financial Stability Report (GFSR) examines the key risks facing the global financial system. Normally the report seeks to play a role in preventing crises by highlighting policies that may mitigate systemic risks, thereby contributing to global financial stability and the sustained economic growth of the IMF’s member countries. However in this current crisis, the report traces the sources and channels of financial distress, providing policy advice on mitigating its effects on economic activity, stemming contagion, and mending the global financial system. The issues discussed are in part, drawn from discussions with banks, clearing organizations, securities firms, asset management companies, hedge funds, standard setters, financial consultants and academic researchers

The global financial system remains under severe stress, spreading to include households, corporations and the banking sectors in advanced and emerging market countries. Shrinking economic activity has put further pressure on banks’ balance sheets as asset values continue to degrade, threatening their capital adequacy and further discouraging fresh lending. Thus, credit growth is slowing, and even turning negative, adding even more downward pressure on economic activity. Substantial private sector adjustment and public support packages are already being implemented and are contributing to some early signs of stabilization. Even so, further decisive and effective policy actions and international coordination are needed to sustain this improvement, to restore public confidence in financial institutions, and to normalize conditions in markets. The key challenge is to break the downward spiral between the financial system and the global economy. Promising efforts are already under way for the redesign of the global financial system that should provide a more stable and resilient platform for sustained economic growth.

The full report can be downloaded from the IMF website

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Prosperity without growth? The transition to a sustainable economy

This report by Tim Jackson, Economics Commissioner at the Sustainable Development Commission argues that the current global recession should be seen as the time to forge a new economic system that can avoid the shocks and negative impacts associated with our heavy reliance on growth. The report argues that far from raising the living standard for those who need it most, our over reliance on growth has let much of the world’s population down. Only a fifth of the world’s population earns 2% of global income and even in developed countries inequality is higher than it was 20 years ago.

This inequality is just one of several reasons why the conventional formula for achieving prosperity should be questioned. As the economy expands, so do the resource implications associated with it. Jackson argues that these impacts are already unsustainable.

Prosperity without growth? is based on research and discussion divided into four main areas – "visions of prosperity", "economy lite", "confronting structure", and "wellbeing policy".  The report proposes twelve steps towards a sustainable economy and argues for a redefinition of "prosperity" in line with evidence about what contributes to people’s wellbeing.

1. Developing macro-economic capability
2. Investing in public assets and infrastructures
3. Increasing financial and fiscal prudence
4. Reforming macro-economic accounting
5. Sharing the available work and improving the work-life balance
6. Tackling systemic inequality
7. Measuring capabilities and flourishing
8. Strengthening human and social capital
9. Reversing the culture of consumerism
10. Imposing clearly defined resource/emissions caps
11. Implementing fiscal reform for sustainability
12. Promoting technology transfer and international ecosystem protection

The full report can be downloaded from the Sustainable Development Commission’s website

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The Global Economy 2009: Forecasts Still Falling

According to the latest briefing from Chatham House economies are approaching what will probably be the lowest point of the economic downturn. The UK economy has shown some resilience and this could be an important indicator of the way in which service-based economies with flexible labour practices might withstand the impact of cycles better than more traditional manufacturing economies. However, it is too early to judge but this aspect of the recession should be watched carefully as the year unfolds. Main points from the briefing:

Recent figures from the more developed NE Asian exporters show global manufacturing industries falling at a shocking rate, indicating possible double-digit declines in GDP in 2009.

There have been worse than expected results in South America, with Brazil likely to see a fall of 3-5% in GDP. Mexico’s results could be much worse.

The economic and financial situation in Eastern Europe and Central Asia is deteriorating rapidly and dangerously.

News from the US and Europe has also been poor but policy efforts may just about succeed in stabilizing these economies by mid-2009.

Against this background, analysts are no longer talking about imminent recovery but ‘second order derivatives’ and ‘counterfactuals’ – but does this mean and how positive is it?

Effectively, the optimists hope that the global economy will shrink less rapidly in coming months (the second order derivative turns from positive, foot down on the accelerator, to neutral, foot off).

‘Counterfactual’ means judging a policy’s success or failure not by actual economic performance but performance relative to what it might have been without the policy in place: the US will hear more about this as the fiscal package will not lead to growth picking up but it has prevented a further collapse in the US economy.

Click here to read the briefing in full

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The future of the global financial system

The current financial crisis has triggered a fundamental review of the global financial system, in terms of regulation, the role of financial institutions and the role of governments. The world is seeing an unwinding of global imbalances, and after more than two decades of exceptional growth, financial institutions are now adapting to a new environment of tighter credit and lower economic growth, increased government intervention and a threat to the previous pace of globalization. This latest report from the World Economic Forum presents the initial findings from their New Financial Architecture project. This phase one report presents a near-term analysis for key stakeholders and employs scenario thinking to describe four potential long-term futures for the global financial system.

The report identifies a near-term industry outlook characterized by an expanded scope for regulatory oversight, back to basics in the banking sector, some restructuring by alternative investment firms and the emergence of a new set of winners and losers. Over the long-term, a range of external forces and critical uncertainties will further shape the industry. 

The four challenging scenarios explored are:

• Financial regionalism is a world in which post-crisis blame-shifting and the threat of further economic contagion create three major blocs on trade and financial policy, forcing global companies to construct tripartite strategies to operate globally.

• Fragmented protectionism is a world characterized by division, conflict, currency controls and a race-to-the bottom dynamic that only serves to deepen the long-term effects of the financial crisis.

• Re-engineered Western-centrism is a highly coordinated and financially homogenous world that has yet to face up to the realities of shifting power and the dangers of regulating for the last crisis rather than the next.

• Rebalanced multilateralism is a world in which initial barriers to coordination and disagreement over effective risk management approaches are overcome in the context of rapidly shifting geo-economic power.

The report was developed by the World Economic Forum in collaboration with Oliver Wyman and overseen by a steering committee of 20 leading industry practitioners and academics.

The full report can be freely downloaded from the World Economic Forum website

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The World in 2009

The World in 2009 is the 23rd edition of The Economist's annual collection of predictions for the year ahead, including views from journalists, politicians and business people.

After an extraordinary boom, in which the world’s GDP rose year after year by between 4% and 5%, global growth will slide below 3%. Rich economies are bracing themselves for recession and all that comes with it: bankruptcies, belt-tightening and rising unemployment. Meanwhile, in the emerging world growth will be less spectacular than before, but in many countries it should remain relatively robust. This is likely to result in a shift in global power to places such as Brazil, Russia, India and China. Click here to see the Economists forecasts for 80 countries

In terms of industries, it is expected that the big industrialised countries will expand by a mere 0.3% in 2009, while developing-world growth will slip to 5.9%, a full percentage point lower than in 2008. World trade will increase by 3% in 2009, a third of the rate in 2006. Trade growth in emerging markets will be healthier, at 8-9%, but this is not entirely good news: emerging Asia’s openness to trade will leave it exposed to the downturn in the wealthier countries. Central and eastern Europe will be hurt by a lacklustre Euro zone and Latin America will feel some of the pain from the downturn in the United States. Click here to see forecasts for 15 industries

One aspect that is likely to take centre stage next year is global warming. At the end of 2009 a gathering in Copenhagen will attempt to reach a post-Kyoto agreement to cut greenhouse emissions. It may well fail to do so, but climate change and related issues (such as carbon trading, water shortages and alternative energy) will loom large in 2009, which is this year’s edition includes a special section on the environment.

All the articles from this year’s publication are available from the Economist.com

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BRIC economies withstand global financial crisis

According to Euromonitor International the current global financial crises has not left the economies of Brazil, Russia, India and China, commonly known as BRIC, unscathed. As the developed world faces recession, BRIC growth is inevitably set to slow. Yet strong foreign exchange reserves and growing domestic demand will allow BRIC to withstand the crisis and continue growing, strengthening their position as a major consumer market.

Key points from the commentary are:

Stock markets in BRIC economies are suffering as foreign investors flee. The notion that emerging economies were decoupled from the crisis in the developed world has proved wrong;

China and Brazil will see weaker demand from the USA and Europe for their exports, while India's services sector, oriented towards developed economies, could suffer. Russia is the most vulnerable of the BRIC countries as it is heavily reliant on the hydrocarbon sector, which will be hit by falling energy prices;

BRIC have large trade surpluses and foreign exchange reserves that make them more resilient to the crisis. Governments are set to use the reserves to increase spending and boost consumer demand;

The crisis is expected to remove the danger of inflation making life easier for BRIC consumers and allowing governments to ease interest rates, fuelling further growth.

Growing consumer spending in BRIC countries will help them to withstand the crisis. While the pace of growth is expected to slow, BRIC will remain a huge and growing consumer market

Current London Business School students, faculty and staff can access this commentary and a range of industry related statistics and market research reports from GMID (via the A-Z list of library databases on Portal)

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Europe@risk

The World Economic Forum’s Global Risk Network has just released a new edition of its Europe@risk report, which is published ahead of the World Economic Forum on Europe and Central Asia (Istanbul, Turkey, 30 October - 1 November 2008).

The report examines the global risks most pertinent to Europe, Russia, Eastern Europe, Turkey and Central Asia relating to four areas: economic slowdown, energy security, demographic shifts and education. Based on a framework developed by the Global Risk Network, 26 core global risks have been identified to the international community over the next 10 years. To constitute a global risk, an issue must have global scope, cross-industry impact; there must be uncertainty as to how the risk will manifest itself (with regard to the likelihood of occurrence and severity of impact.

Figures for Western Europe show that it is officially in recession and the level of uncertainty about the full extent, duration and longer term consequences of this crisis remains very high. This economic situation puts a number of the region’s challenges in new light; slower or no growth, combined with tighter credit conditions, will impact consumer, corporate and government spending. The mitigation of many of the risks considered in this report will require even greater collaboration across the region and considerable investment over the long term, be it in infrastructure, education or alternative energy.

To read the report in full click here

Economics matters - Use RGE Monitor

RGE Monitor -  Insightful commentary on recent economic and financial events.

Roubini Global Economics  (RGE Monitor)  provides a global perspective on economic issues, policies, and debates, covering over 130 different topics and 50 countries.  The web site combines macroeconomic research, commentary, analysis, news, internet blogs and data. It offers a simple way to keep up to date plus with the advantage of meaningful commentary.

Staff, students and faculty can access this service if they register first by going to the link in the library A-Z list of Databases

Recent coverage:

TIC Data and the U.S. Deficit: Foreigners Fleeing Agencies
The Fallout Continues: Money Market Rates Double
Asian Central Banks Step into Money Markets to Contain Liquidity Shocks From U.S. Credit Turmoil

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