Today, excitement is being generated by the IMF’s announcement that it expects the UK economy to grow by 2.9% this year, the fastest rate of any G7 economy. This is the latest instalment in the, ‘Rejoice! Britain is recovering!’ narrative that has become the received wisdom over the last few months, something that I have observed with increasing bemusement. As a Labour politician, I would be expected to rubbish this message and the Coalition’s attempts to get it across, albeit a rather easy task with so much of the media on their side. There are plenty of opportunities here. For example, this would be fairly modest post recessionary growth, if our experience of previous recessions is anything to go by. Plus much can be said about this growth being generated by rising debt, falling savings rates, and housing market bubbles, together with our worsening trade balance. However, as a businessman and investor (of my own modest pension pot), my self interest lies in being scrupulously objective when assessing what is likely to happen to the economy over the short to medium term. I need the economy to do well for my business to provide me with a living and for my savings to grow and provide me with an income in retirement. But if I do think this recovery is too good to be true, then I need to take action to protect myself. Consequently, I spend a lot of time trying to get behind the headlines and discover the reports that, although freely available, don’t get talked about very much. My hope is that I might stumble across a canary in a coal mine, as I did in 2006-7, and save myself from financial loss.
Over the last few days, I came across a number of such reports. The first was this one on the BBC website, which said that the Chinese government were going to embark on yet another round of fiscal stimulus, as they were so concerned about the slowdown in their economy. Then later the same day the BBC reported that Christine Legarde of the IMF was calling for more fiscal stimulus because she was 'concerned that the global economy could be heading for years of 'sub-par growth''. A few days later, former US Treasury Secretary, Larry Summers, writing a piece in the FT entitled What the world must do to kickstart growth, called for fiscal stimulus in the US to counter slow growth, what he calls 'secular stagnation'.
Can you see a theme emerging here?
The UK economy doesn't exist in a vacuum. Is it rational to be so optimistic about its prospects when it is widely believed that the global economy is so fragile that action by governments is needed to ensure that healthy growth is sustained? Moreover, the likelihood of generating the political will necessary to achieve this in the US and Europe must be pretty slim. This is not least because the Very Serious People, to borrow a phrase from the economist Paul Krugman, at the IMF, ECB, EU, etc, have been enthusiastic proselytisers for Austerity for the last 4 years. Things would need to get very much worse than they are now for such a humiliating about-turn to take place.
The mouth may speak what the heart is full of, but if you want to know what someone really believes, then look at what they do with their money. I am seriously thinking that when it comes to my small nest egg, it may be time to consider following that old stockbroking adage, 'sell in May and go away'.
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