Enjoy yourself - it's later than you think
The gloomy economic picture is very different when you take a global perspective.
The world economy is forecast to grow not by the pedestrian +1.5 per cent predicted for the UK but by over four per cent. Emerging economies overall are growing substantially faster than this, at 6.5 per cent on average, but with India and China growing even faster. In these countries activity has not just recovered to pre-recession levels, it is firmly in new high ground. Inevitably this level of activity has been reflected in higher commodity prices as demand has risen far faster than supply – China’s oil demand has doubled in a decade. As a result inflation has become a problem, clearly in the UK, where it is running at a rate twice the Bank of England’s target level, but more particularly in emerging economies where price pressures are much more acute. In fact, for many countries controlling inflation has become the key policy objective – China, India, Korea, Thailand, Philippines, Taiwan, Indonesia, Russia, Hungary, Poland, Turkey, Israel, Brazil, Peru, Chile, Columbia – and the Euro zone, are all on a list of countries which have adopted more restrictive economic policies.
Moderation
As they tighten policy so overall world growth will moderate. The present cycle looks likely to be the first where the growth rate peak is determined not in the developed West but in the developing nations. With domestic conditions remaining difficult, the UK has enjoyed a welcome boost to its recovery to date from international trade. If these growth rates are now about to moderate then there will be an effect on the domestic economy, capping growth at pedestrian levels and extending the period where recovery feels like very little recovery at all.
Author: John Kelly
John Kelly is head of client investment at CCLA.
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