UK back in recession: the rest of Europe is not far behind
If we go by the most quoted definition of recession – two consecutive quarters of negative growth - the United Kingdom, technically speaking, is back in recession. The Organisation for Economic Co-operation and Development said this week that the economy shrank by 0.1% - and for the second successive quarter in a row – rattling the political establishment to its core while heralding a frightening era of uncertainty.
If confirmed by the official figures, which are due to be released in April, not only is it the most destructive recession for a century, but also the much-feared double dip one.
Since the latest bad news followed the disappointing data on the unemployment front, released earlier on, the two factors and what we notice on daily basis at the ground level, no longer constitute an index of rules of thumb; the facets of reality are everywhere – from the struggling retail chains to the humble corner shops.
The update came in the wake of the steep rise in petrol price, which went past the psychologically-sensitive £1.40 mark recently. Adding insult to injury, George Osborne, the Chancellor of Exchequer, imposed a tax on pensioners and VAT on popular snacks like pasties, which in turn invited the wrath, not only from the opposition, but also from a significant section of his own party faithful.
Having been hit by the rising fuel cost, the tanker drivers, meanwhile, threatened to resort to industrial action. David Cameron, the Prime Minister, put his foot in it by urging motorists to fill up their tanks in advance, which led to the endless queues in forecourts, sporadic scuffles at the pumps and then, an embarrassing U-turn by the government – with the advice not to fill up the tanks, after all - when the strike in question appeared to be non-existent.
This week has been disastrous for the coalition government, in general and the Conservatives, in particular. The critics of both sides of the political divide, seized on the latest data released by the OECD, to attack the government policies- by branding them as futile for an economic turnaround. They came down very hard on the tax levied on the pensioners and VAT on food like pasties. They see the attempt made by the government to get embroiled in the fuel crisis, as a feeble diversionary tactic to take the eye off the ball of budget.
As expected, the economists do argue about the latest figures while failing dismally to find a common position - not so much in the expectation of consistency, though. With the latest developments, even those who vaguely spotted the green shoots started pretending that they didn’t, while sensing the long-term damage to their credentials: much to their horror, they found out that the recent, slight rise in house price was just an illusion, which came down much faster than its upward journey; the retail sales did not do perform any better either.
The OECD cited the ideological obsession of the European governments with the austerity measures as the root cause behind the prolonged stagnation. It went on to say that the countries in North America did not go as far as some European nations along the controversial path in tackling the problem – and appear to be weathering the storm. The growing protest movements in Greece, Italy and Spain indicate how badly the ordinary people have been hit; the Think-tank does not believe it is the way to address the issue.
The latest data does not paint an encouraging picture of other major European economies, especially Germany and France, either. The GDP growth is alarmingly small – menacingly fluctuating between positive and negative territories.
It goes without saying that a growth rate, which stubbornly chooses to be in decimal territory for the foreseeable future in Europe, is very worrying for the entire world. The failure of the governments to curb the rise in oil price, is not just adding fuel to a metaphorical fire; they are paving the way for an inferno which could engulf multiple fronts simultaneously, ranging from political to social.
The measured threat of releasing oil reserves to curb the oil prices will have very little impact on the situation, when things get out of control. It is high time the policymakers got a grip with the situation, while not underestimating the significance of low fuel cost in stimulating a flagging economy. If the fuel duty was not slashed, the OPEC would not be prepared to be the bogeyman of the motorists.
- Asian Tribune –