WORLD of punditry must own up to getting it wrong about the remarkable resilience of the business cycle, writes Bill Jamieson
Record numbers in work, inflation at a new low, business start-ups booming, the stock market at a new high: first one milestone, then another.
Welcome to the recovery – yes, the Recovery that Should Never Have Been.
Let’s take a trip down Memory Lane, to 2009. The global banking crisis had struck. The economy was spinning into deep recession. Financial markets were gripped with fear. Shares were plunging. On newsstands and on television, then on bookshelves and social media, the harbingers of doom closed in.
Earnest commentators warned of apocalypse. House prices would dive, millions of homes would be engulfed in negative equity. Capitalism as we knew it was in its deepest crisis. Across America and Europe thousands of businesses would be closed and millions thrown out of work. On BBC Newsnight the studio back wall projected terrifying graphs of plunging markets. And in bookshops and book festivals the gloomiest tomes poured forth. Talk of recovery was dismissed as facile: we had not grasped the full magnitude of the crisis. Mass unemployment would be with us for years as governments rammed through dreadful austerity programmes.
For the doom-mongers it was boom-time. Hours of analysis were given to them on TV and their books – the more grisly and apocalyptic the title the better – flew off the shelves.
Now it’s certainly true that we suffered a sharp and painful recession. Recovery took its time. On net trade – our balance of payments – the figures are still dire. There’s a long way to go yet before we can pronounce a full recovery.
But look, too, at what actually happened. The business cycle did something totally predictable. It turned. Here’s a tip: that’s what cycles do. The economy, both in Scotland and across the UK, has now been in recovery for three years. Last year output passed its pre-recession peak. In the year to the third quarter of 2014 – the latest for which official figures are available – the economy in Scotland grew by 3 per cent. Hands up those who forecast this? No hands.
For many it is the labour market that provides the best indicator of our economic health. What happened here? Far from mass unemployment, many companies hoarded labour during the downturn. Business recovered, there was a deluge of business start-ups, firms started recruiting, unemployment fell and numbers in work climbed steadily. Since 2010 three private sector jobs have been created for every one public sector job lost.
Don’t say Scotland missed out on this. Figures last week showed unemployment in Scotland fell by 15,000 in the three months to December and is now down to 5.4 per cent – lower than the UK average (5.7 per cent). And numbers in work rose to a record high of 2,625,000 over the same period.
Are these recovery milestones soon to be wiped out as we falter and slump backwards? It never does to believe in a linear path of upturn any more than a linear descent into a Great Depression.
But the stock market isn’t too gloomy about prospects. This week the FTSE 100 index of leading shares passed a new milestone. It hit an all-time high, beating the previous record set 15 years ago.
Investors took heart from the OECD’s latest survey of the UK economy noting its 2.6 per cent growth last year was the highest in the G7. And it expects the same this year.
Yet over the past five years leading forecasters such as the Fraser of Allander Institute consistently under-estimated the strength of recovery. It was not alone in this. But its analysis constantly argued that the recovery needed higher government spending and warned that “austerity” cutbacks would hold back our performance.
Yet despite five years of spending constraint, economic growth in Scotland and across the UK has defied these gloomy predictions. Of particular note has been the surge in new business start-ups – the number in Scotland has risen by almost 50 per cent since the end of the recession, taking us to the highest level in the series back in 2004.
Across the UK a record number of new businesses were started last year – more than 580,000. But all this should not have happened.
What of that house price collapse? Scotland’s mainstream market was indeed hit by economic worries, poor sentiment and lending constraints. But according to upmarket estate agency Savills this week, it is likely to show a strong performance over the course of 2015, with the highest rate of growth across all UK regions. “There continues to be”, it says, “strong market activity in Scotland’s traditional prime market hotspots like Edinburgh, Aberdeen and the West End of Glasgow.”
Consumer confidence has recovered too. A study by Lloyds Bank finds that household confidence in spending has risen to its highest point in four years.
Finally, what of spend on infrastructure projects, a particular concern of the Keynesian School? Yes, many projects were cancelled or deferred. But today we are standing on the threshold of a regeneration of our infrastructure across the UK running into hundreds of billions of pounds and the biggest upgrade to our power, roads and railways since the Victorian era.
Add up all the scattered, disjointed bits of news about road projects, rail upgrades, nuclear plant refurbishment, flood mitigation and plans to transform transport connectivity and it comes to a massive sum.
Nor is Scotland missing out here, either. All told, Scotland’s five largest transport projects will total more than £7.5 billion over the next three decades.
The Scottish Government is never slow to bleat about grinding Westminster austerity. But this week infrastructure secretary Keith Brown forgot to put on the ragged trouser outfit and the threadbare jacket. He spoke of schools, colleges, hospitals, transport and other public infrastructure projects worth around £1.5bn set to be completed this year.
Well said, Mr Brown.
But this, too, fits with a story nobody foretold. It may be a classic case of economists being right in theory – but wrong in practice. Never mind. Let’s raise a glass – to the recovery that we were kept being told would never happen.
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