UK ECONOMIC GROWTH FORECAST HALVED


GrowthFor those of us who have spent at least the past 5 years pointing out that the developed world has reached the end of growth, in other words the end of industrial age, cheap-fossil-fuelled-energy rates of economic growth, it’s no surprise to learn that the Chancellor of the Exchequer has today announced a halving of his December 2012 growth forecast for 2013, from 1.2% pa to 0.6% pa.  That is one hell of a ‘tweak’ to a forecast.  Indeed, it means that the previous forecast was – to use a technical term – wishful thinking.

Thereafter, economic growth is predicted to be 1.8% in 2014; 2.3% in 2015; 2.7% in 2016 and 2.8% in 2017.  Indeed, Ed Conway (Sky News’ Economics Editor) has just tweeted that ‘the OBR thinks growth will be 2.8% [in 2017].  Let’s not forget that 3 years ago it forecast growth of 2.9% this year.  Now that’s 0.6%’. Anyway, the OBR’s forecast is great because it means that by 2016 the UK economic growth rate will be slightly higher than the trend rate of economic growth in the UK since the 1950s.  The tricky bit is that the inflation-adjusted price of oil (in particular) is now some 4 – 5 times more expensive than it has been since the second half of the 19th century up to mid-2008 (when oil hit $147 per barrel).  So, with mankind’s most important and critical source of energy – oil – now prohibitively expensive, with other energy costs rising all the time and set to continue rising (billions of human beings want to be middle-class), and with energy being defined as ‘the ability to do work’, it will be interesting to see how we shall actually be doing enough affordable, profitable work to grow the economy at an annual rate of 2.7% by 2016.

Put simply, the UK government’s economic growth forecast for the period to 2017 is – to use that technical term again – wishful thinking.  That’s all.  The government must forecast those rates of growth for no other reason than to justify state borrowing and spending between now and 2017.  If the government made a realistic, end-of-cheap-oil forecast of economic growth rates to 2017 then the government would look at the figures and say, “Fuck me, we’re bankrupt!”.  So, the government crafts economic growth rates to justify state spending.  That’s how it works.

OK, I’ll now go on record as follows … Moraymint’s forecast for economic growth over the same period is: 0.3% in 2013; 0.7% in 2014; 1.2% in 2015; economic contraction in 2016; anybody’s guess in 2017. Having looked at my forecasts and run them through the ‘Moraymint Model of State Spending’, I am able to conclude “Fuck me, we’re bankrupt!”

See you down the pub.

Oh, and by the way; Scientific American has just published this Q&A article, ‘Will Fossil Fuels Be Able to Maintain Economic Growth?’  You decide … http://tinyurl.com/ccwldzr 

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Also posted at the ‘Renegade Economist’: http://tinyurl.com/czkdgny

19 comments

  1. Craig R · ·

    Yes bankrupt and at this rate a 3rd world country !

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  2. Richard · ·

    I can’t disagree with anything much here; I think the ‘coup de grace’ will be delivered by an increase in interest rates. No state can survive a doubling of bond rates with debts like those of the UK and a doubling of those rates will only take us slightly north of 3%. No amount of ‘growth’ will cancel out the consequences. I fear my grandchildren will inherit a economic holacaust.

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    1. ernie · ·

      Richard – I’m actually one of those strange people who think a rise in interest rates would be constructive. I know it would hasten the liquidation of some bad loans, which we certainly need anyway. It might well cause some trouble in the housing market, which we also need to clear at lower levels. However, my main point is that I believe the current interest rate regime actually causes more saving and less spending. It’s counter-intuitive but people react to these “emergency” conditions by battening down the hatches. The so-called economists have never understood this and expect their classical models to work as they used to. But,we are in a different cycle now and raising rates to sensible levels for savers/investors (2.5 or 3%) would actually improve the overall balance I believe. Of course, the biggest debtor is the government, so there goes my idea! Ed Balls said this morning that the ONLY way to cut the deficit was to get growth. So you see that despite an increase of 50% in spending over a decade or so, all that spending just can’t be cut, whatever you do. Surprising really….

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      1. Richard · ·

        Thanks for the response, ernie.

        I was, as you noted, thinking of bond rates rather than bank interest rates. I know as an instinctive saver that I will never spend money I haven’t got to spare, so I look forward, as do millions now under battened hatches, to interest rates which leave me with a net income after tax and inflation have been accounted for. I will then spend and contribute to growth. I wonder, though, how much ‘growth’ will be needed to pay for the cost of government bonds at 3% or so. By 2017/8 our national (public sector) debt looks like being in the region of £1.5trillion or more, even if the deficit has been cleared by then (which of course it won’t). By my simplistic calculation that means £45billion pa just to service it, let alone reducing the debt pile.

        Since that is about double what Labour want to spend on stimulous now, how would such a stimulous leverage its own weight in tax income? As you have probably noticed, I am no
        economist but I am interested in learning from people who might know more that I do.

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    2. moraymint · ·

      Richard, I agree that if UK interest rates were to rise, let’s say by 200 basis points, then all sectors of the economy, private and public would be in very serious trouble indeed.

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  3. Hysteria · ·

    And the other part of this debate is to remind folks that economic growth is not the normal condition if you look at history. It seems the ONLY strategy available in the modern lexicon is “must have more growth”. Why? if we built a society based on mutual respect, localism, small government and less desire to have “stuff” and more desire to have stronger relationships, we might have a better place to live. Unfortunately, whilst this might be possible for those of us fortunate enough to own a bit of land and roof over our heads, what about the vast majority of the global population who are urbanized. No happy clappy allotments for them I think….Actually – I think population growth is the elephant in the room…..

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    1. moraymint · ·

      Spot on. On the one hand “the future” is almost certainly going to be about the opposites of ‘globalisation’, ‘consumerism’, ‘growth’ etc etc. However, if that’s the case – and I really do think it is – then the transformation to some new socio-economic steady state (if human beings ever experience ‘steady state’) is going to be, er, challenging (understatement).

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    2. Sorry Hysteria, can’t agree with population growth being the elephant in the room.

      1) http://www.overpopulationisamyth.com

      Population growth is predicted to peak at about 10 billion in about 25 years time then fall back to present day levels & below as prosperity in the developing countries grows.

      2) Matt Ridley, who has recently been elevated to the House of Lords, & whose excellent website is http://www.rationaloptimist.com believes that “peak land” has now been reached, ie no more land need be put under the plough to feed our population, due to improvements in fertilisers, plant genetics & farming techniques etc.

      3) Your thinking is Malthusian, & this poor cleric’s philosophy has been proven false many years ago. He saw population growth as exponential & food production as linear & predicted disaster on the basis of those two graphs diverging. He failed to factor in human ingenuity & inventiveness.
      He advocated the knocking on the head of the less efficient members of society, so the more superior members of society would survive more comfortably. Eugenics & genocide were nurtured above a clerical collar.

      4) In my opinion the elephant in the room is Central banking with a fiat currency.
      http://www.mises.org/journals/qjae/pdf/qjae14_4_1.pdf
      along with the mad yanks & our cheerleader govts dashing around the world starting wars on lies & fomenting civil wars & civil unrest especially in the Middle East & Africa to grab dwindling oil & other natural mineral resources, & cause population decrease through combat.

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      1. Richard · ·

        I’ve just seen your response to Hysteria and, although I note your view that the Malthusian theory of population growth is a myth, I find it difficult to accept the denial of one hypothesis on the basis of another. The prediction that the world’s population will peak in 25 years time is just that, a prediction (if not wishful thinking). We will not know for sure for at least another generation.

        The theory of ‘peak land’ is also questionable. If the world’s population is to stabilise, as you suppose, due to the benefits of economic growth, those very benefits will drive a huge increase in demand for more sophisticated food and other lifestyle goods. That means billions more animals for milk, food and skins, billions of tonnes more of everything in fact. For the evidence we only have to look at India and China to see that the aspiration of every peasant now living in deperate poverty (by our standards) is red meat, cars, computers, labour saving devices and foreign holidays; in other words, what we’ve got!

        I can’t say you’re wrong, of course but I take the pronouncements of ‘experts’ with a huge pinch of salt. It may well be that Malthus was completely wrong, but it might also be that he was only out on his timescale.

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        1. Hi Richard, good points.

          I’d like you to look at the following:
          1) http://www.wattsupwiththat.com/2013/03/14/a-must-watch-greening-the-planet-dr-matt-ridley/
          A speech to the Royal Society. Only 18 mins, & so worthwhile. Also:

          2) http://www.wattsupwiththat.com/2013/03/08‘a-bridge-in-the-climate-debate-how-to-green-the-worlds-deserts-and-reverse-climate-change/
          Dr Allan Savory, after shooting 40,000 elephants because he believed they were degrading the land, has learned how to turn 15 million hectares of desert into grassland, over 5 continents, since 1985. possibly the best 22 mins you’ll spend this year.

          I find credence for the population growth figures I cited in the fact that western societies have experienced lower than replacement birth rates. Populations have been sustained only by immigration. Catholic Italy, for example had a birth rate, (excluding immigrants), of only 1.8.
          Replacement is ~2.4 children per family, I believe.

          I agree that ‘experts’ opinions should be taken with a rather large pinch of salt.

          Like the panel of 28 ‘experts & scientists’ who persuaded the BBC to abandon their Charter Duty of impartiality in Jan 2006 in the global warming debate. All 28 turned out to be warmist activists, or vested interests:
          http://www.omnologos.com
          The BBC spent hundreds of thousands of licence payers money to cover up their lies, & no heads have rolled.
          There has been no global warming for ~16 years & our govt has been quietly forced to stop teaching the global warming scare scam in our schools to under 14 year olds.

          Like

  4. John Bennett · ·

    I don’t normally get involved in comments and stuff, but I think your web site offers a masterly analysis of what is going on, and I expect to be a regular visitor. I see your comments in the Daily Telegraph on line (I am in Spain) and normally agree with you. There is a good, long comment today from Sammy 1795 on Oborne’s article. Says it how it is.

    Like

    1. moraymint · ·

      Thanks John, pleased to see you here. Will check out ‘Sammy 1795’. Stay in touch …

      Like

  5. Yes. Very Good. One thing I didn’t understand until recently was that as the oil stalls we try to make it up wth debt We think we can borrow and throw more money at the economy and that will sustain us a little longer. We forget that in the end money is just paper and oil is real. Thanks.

    Like

    1. moraymint · ·

      Yes, as stalling economic growth fails to deliver sufficient capital in real-time, so to speak, we borrow in the hope the there will be sufficient economic growth tomorrow both to service the debt and eventually repay it. The problem is that the maths of this ain’t working any longer as economic growth dissipates.

      Like

  6. ernie · ·

    As posted before, I repeat the maths will get them (us actually of course). Compound functions inevitably mean that we will not be able to sustain the current level of government spending, whatever we do. Raising taxes will cover a bit of it, but it’s well enough known how higher taxes fail in the end to get the revenue they expect because of natural human economic behaviour. To add to the tone of despair, I heard that idiot Yvette Cooper explaining her alternative policy to get grwoth in the economy. We need to borrow more and spend it on infrastructure projects. Ok, how much would “do the trick”? Well, I would say about £10 billion she said, then later she mentioned £12 billion which was apparently the figure Labour had suggested right after their election defeat.
    So, there we are – if we don’t like the coalition’s sums, we can have a go with Labour by guessing a figure and then watching everything grow. Or not. Or perhaps it should be £20 billion? Who knows?
    Yes we are, to use another technical term, fucked…

    Like

    1. moraymint · ·

      Yup!

      Like

  7. Broke and nearly insolvent given the capital repayments and rates UK PLC have to pay back or inflate away…

    Negative interest rates says it all.. All Levers fully extended to breaking point…

    “What’s yours is mine and what’s mine is my own….”

    Like

  8. Max C · ·

    My next year’s Council Tax statement came through this week and with it a letter explaining the charges. It included the statement that the country’s debt is costing going up at £40 million PER HOUR. So yes, I would say bankrupt about sums it up.

    Like

    1. moraymint · ·

      This is a good description of the UK debt situation … http://tinyurl.com/ngcnfu

      Like

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