Mediocre... maybe the best we can hope for?
Economic indicators suggest the portents for the immediate future are not looking good.
Oil prices continue to fall which, whatever the immediate benefits to us when filling our cars, suggests global demand is declining particularly in developing countries such as China.
The situation closer to home is even more serious. The value of the euro is at its lowest level since the summer of 2010 in the wake of comments made by Mario Draghi, the president of the European Central Bank (ECB) of the possibility of quantitative easing to attempt to stimulate flagging eurozone economies.
A falling euro may seem like good news for those of us planning summer holidays on the continent but it makes our exports relatively more expensive which is not so good given Europe is still our biggest market.
The announcement by Markit/CIPS that the so called ‘Purchasing Managers’ Index’ was at 52.5 for December, a drop from 53.3 in both October and November is, given that this was the period leading up to Christmas, not of immediate concern.
The trouble is, longer-term Markit/CIPS data suggests a trend of slowing in the manufacturing sector which will be negatively affected by reduced demand from abroad.
Remember, manufacturing is a sector seen as vital in that it makes tangible goods using, largely, skilled people.
Sadly, it seems, the much heralded ‘March of the Makers’ has stalled before it really got started.
This is all the more worrying because as a CBI report in late November suggested, there was “reduced optimism” among firms involved in services; a sector contributing over 75 per cent of GDP in the UK.
The appallingly timed announcement of courier City Link going into administration resulting in job losses both directly and indirectly, especially at its head office in Coventry, suggests trading remains extremely challenging.
Though we are being told the economy is recovering, it’s important to remember too much reliance is placed on consumer spending – funded by ever-increasing debt on credit cards, loans and overdrafts – to purchase goods and services in the belief they are becoming cheaper and delivered free or for next to nothing.
As City Link demonstrates, the economic law of supply and demand shows that when the price goes below the break even point you go bust. As a theory that is fine. Empirically the result is misery for the workers who lose their jobs and can no longer support their families.
Coventry was, like Birmingham, a traditional motor-town. That it is so badly affected by the collapse of City Link is unfortunate.
Any talk of economic recovery will seem illusory to workers who will find it hard to obtain full-time alternative employment.
Moreover, self-employed workers for City Link will, as unsecured creditors, lose any money owed which undermines the optimistic language that has accompanied recent falls in unemployment.
Analysis of increased employment shows that jobs created are all-too-too low-skilled and frequently transient.
Self-employment may offer benefits but try telling that to those who worked for City Link and have nothing to show but debt.
These are difficult times but could get a lot worse.
Writing in the Telegraph, John Ficenec presented ten warning signs of a market crash in 2015.
Ficenec believes we could be heading for a crash in international stock markets that would potentially plunge us back into recession.
Among factors Ficenec identifies are a dramatic increase in what is known as the ‘Vixfear factor’ coupled with rising US Treasury yields.
Using the ‘Shiller CAPE’ (Professor Robert Shiller’s cyclically adjusted price earnings ratio), Ficenec argues the US market is ‘overvalued’ and at 27.2 is 64 per cent above the historic average of 16.6.
Chillingly he adds that it has only been higher three times since 1882 – 1929, 2000 and 2007. We all know what followed in 1929 and 2007.
Ficenec like many others believes the recent falls in commodity prices should be seen as a warning which, he asserts, is the reason why many professional investors are already making for the exit.
He also contends our banks are not in good shape to deal with another major crisis and cites the fact that the Libor-OIS spread index, an effective measure risk based on the difference between the London interbank offered rate (Libor) and the ‘overnight indexed swap’ has reached its highest in over two years.
Finally, like many other commentators, Ficenec thinks interest rates will increase this year and follow the US where it is widely believed they will go up by the summer – the reason why the pound has fallen by ten per cent since July, though good for exports to America.
So, it seems, there is much to be concerned with, though all that is on offer by the two major parties are various shades of austerity.
Many economic commentators vigorously argue that more austerity when global stagnation is likely is completely the wrong approach as it will not aid sustainable recovery and simply make matters worse.
At its annual meeting in October, the IMF head Christine Lagarde used the expression “new mediocre” in tacit acknowledgement of the pervading view that for the foreseeable future this is the best we can hope for.
Since then events have suggested that the world economy has significantly deteriorated.
Many argue that unless more radical solutions are considered we may experience persistent global financial crisis and inevitable accompanying austerity.
More cynical commentators suggest that given the recent experience has allowed the rich to get richer by reducing the value that labour can obtain for its services and that some may welcome more turmoil.
As data demonstrates an average worker earns £2,500 a year less than they did in 2010 and the inequality gap is widening so that the highest paid UK directors earn 120 times the average wage, which is a significant increase on 1998 when the proportion was 45 times.
This is surely not in our collective interest and policies after the election should address growing inequality.
May’s general election will be fought against an increasingly uncertain economic climate – it will determine our well-being for the next five years and into the next decade.
As such, it is probably the most important in a generation.
Contrary to economist Joseph Schumpeter’s ‘winds of creative destruction’ theory which he believed created an environment to stimulate innovation and creativity, manufacturing industry here in the West Midlands will most definitely not benefit from another battering.
For everyone’s sake let’s hope voters think carefully before voting in May and that our leaders recognise the need to work in our best interests through sensible policies that underpin and support expertise and ingenuity in engineering and manufacturing.
That is the best way to avoid further deterioration in average living standards.
Importantly, as the incredible products our local companies produce consistently demonstrate, what we produce is anything but mediocre.
* Dr Steve McCabe is director of research degrees at Birmingham City University