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Slowing growth in Europe and emerging markets and October’s equity sell off have got economists pondering when the next recession might strike.
Recessions are not rare. Donald Trump, born in 1946, has lived through 12 US recessions. Britain has had eight since the War.
Some countries do better, but they are outliers. The Netherlands had 26 years of interrupted growth 1982 and 2008, a record matched by Australia since 1991. The International Monetary Fund reckons that economies are in a state of recession roughly 10-12% of the time. For most rich world economies recessions are like London buses - there will always be another one along.
It ended on a high note last week, but overall October was a rotten month for equities. The world equity market has just had its worst month since 2012, with the benchmark MSCI world index down 7% in October. This fall has more than reversed earlier gains, leaving the global index down 3% so far this year.
The UK is running out of workers. At 4.0% the unemployment rate is at the lowest level since the early 1970s. This is below the rate in historically low-unemployment countries including Sweden, Denmark and Canada. A record 832,000 jobs are unfilled in the UK (two of them in the economics team). The attrition rate, the rate at which people change jobs, has shot up to its highest level since records began in 2001.
The financial crisis, recession and a slow recovery played havoc with the UK’s public finances, leaving the government with the largest ever peacetime budget deficit.
Free market capitalism has faced intense criticism in recent years. Even that most basic tenet of the post-‘70s era, the free movement of capital and floating exchange rates, has its critics. Some on the left believe that a government set on fundamentally reforming capitalism might need to bring in controls to prevent capital leaving the country and a sharp currency devaluation.
The third quarter Deloitte survey of UK Chief Financial Officers released today shows concerns about Brexit weighing heavily on business sentiment.
In May we wrote that geopolitical factors posed an upside risk to oil prices. Those risks have materialised. Last week the oil price reached $82 a barrel, up 40% over the last 12 months and the highest level in almost four years. Some analysts are warning of a spike above $100.
Last week the team came across some remarkable data. The Oxford economist Max Roser estimates that in 1820 more than 90% of the world’s population lived in extreme, absolute poverty, defined as living on less than $2 per day in today’s money. By 1981 this had fallen to 44% of the world’s population. Today it stands at less than 10% of the world’s population.
Economists of all stripes would agree that investment and the application of technology drive economic activity. For decades governments around the world have made strenuous efforts to encourage investment and new technologies. Last year this orthodoxy came under fire from an unexpected source.
It would be hard to imagine life without mortgage and consumer credit.
Mortgages have extended home-ownership beyond the ranks of those on high incomes or with large amounts of capital. Credit has helped bring other major purchases, such as a new car or a kitchen, within the reach of most households. For the wider economy there are benefits too, since access to credit helps keep households going when incomes are under pressure.