AS 2012 limps unconvincingly towards its close – just like 2010 and 2011 – you would have to say it does not exactly cut a dash.
Growth has remained elusive and Britain managed to slip into yet another period of recession. The realities of the long, hard slog of deficit reduction and debt repayment have become painfully clear and there is a growing realisation that – whatever the merits of the strategy – the costs in terms of lost output and consumption may be higher than thought.
Proving a negative is always difficult, but it remains probable that the costs of a more cavalier approach to fiscal chastity would have proved even higher; that still doesn’t make the chosen path much fun.
So, 2012 is going to share something else with its two predecessors. In late 2010, I tentatively forecast that the UK would see some recovery in the following 12 months. There was sound logic behind the argument but honesty – and the plain facts – require an admission that as forecasts go, this one was about as wrong as you can get.
Having listened as the assorted “noises off” during the financial crisis seemed to have abated, it was frustrating to find my logical expectations blown away by what were now geopolitical rather than financial upsets.
Tenacity, or perversity, led me then to moot the possibility that the deferred recovery might come in 2012. Cue yet more overseas distractions (sigh) and, to be fair, I did fail to take fully into account the general sluggishness of the rest of the world’s economies. Memo to self: sometimes bets should be hedged.
They do say “third time lucky” so, I’m once again venturing the view that the coming year will see recovery finally gaining traction – though any improvement in the UK will be tepid by comparison with much of the rest. Barring accidents, admittedly rather a large hedge to the bet, the international background is set to improve.
Over the past year, China has slowed, sending shudders through the commodity markets and feeding raw meat to the prophets of doom. But this policy-led slowdown has all gone really rather well. GDP growth has bottomed out and will stabilise around the new policy target of 7.5 per cent a year.
Even better, political transition has now completed and though these are early days the mood music from the new incumbents is encouraging. Much angst was generated in 2012 by China’s slowdown. That angst should dissipate as China and everything dependent on it return to a slightly calmer version of business as usual.
The trends look promising in the US, too, even if as I write there is still no formal agreement to avert the dreaded “fiscal cliff”. I have droned on ad infinitum about the damage this stand-off is doing to the real economy; on the assumption that a half sensible deal is done, the release of pent-up investment and demand will be huge. With a bit of luck, we may even have something to celebrate by the time this piece prints.
Even Japan may show some signs of life with a landslide victory for the Liberal Democratic Party on a ticket promising aggressive reflation – including giving the Bank of Japan a good kicking for its apparent devotion to deflation. I don’t normally approve of that sort of thing, but I can make an exception in this case.
Europe remains a mess, but in many ways is a bit less messy than it has been. No longer is it a given that Greece will drop out; rather it is becoming a given that it won’t. What is being achieved by former delinquents (Spain, Ireland, Portugal) is remarkable and though France is another crisis in the making, that is for a more distant future.
So, that should cheer us up a bit; our own economy can pull some weight too. Employment is strong, pay is nudging up and the biggest hits from austerity are behind us. I’ve been wrong twice in a row, which has been annoying and embarrassing. But I have a cautiously good feeling about 2013 and – guess what? –global equity markets seem to agree.
• Peter Bickley is a consultant economist