Green shoots with shallow roots

20 May 2009

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It’s true there are signs of an economic recovery, says Martin Vander Weyer, but we should also beware a ‘third wave’ of destruction

The Bank of England is said to be particularly fearful of a ‘third wave’ of destruction yet to come in the UK financial sector: hence, in part, its recent decision to increase the target for its quantitative easing programme from £75 billion to £125 billion. And Stephen Hester, fugitive Sir Fred Goodwin’s successor as chief executive of Royal Bank of Scotland, summed up the abiding mood of fear in bank boardrooms when he announced an £857 million loss for the first quarter: ‘Some commentators are beginning to talk about economic recovery but we do not see green shoots, and we expect 2009 and 2010 to be very difficult years for the economy and RBS.’

So the true picture is, as Richard Lambert of the CBI put it the other day, one of green shoots with shallow roots, ‘and plenty of dark clouds on the horizon’. That’s exactly what I see when I look out of my window: my beech hedge is indeed as green as it has ever been, but in the small Yorkshire town of Helmsley on the other side of it — more prosperous than most places of its size in the north of England — the two major housebuilding sites have been abandoned, several shops have closed down, and many people are afraid for their jobs and their children’s prospects. Another icy shower rattles the glass to remind me that we’re facing a very long, very cold spring.

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Alexander

May 21st, 2009 9:18pm Report this comment

Credit crisis in Russia, Argentina and the Far East took two years to work themselves out, and were then followed by three years of subpar growth. Why do we expect better performance in the UK and US? Sure, we've got more developed markets, but they weren't confronted by a global recession. I truely hope that I am wrong, but I fear that I'm not.

Colonial

May 22nd, 2009 9:29am Report this comment

I believe that the reasons for the crash have been grossly overcomplicated. Or perhaps, as they are simple, they are passed over on the basis that such a monumental economic mess must have highly technical causes.

What we had was a very long, consumer led, boom based principally on a great deluge of lending by the banking sector. Unless an equivalent level of lending is reinstated there will not be an equivalent level of spending. And the resultant economic activity. There is simply no way that the lend and spend pattern of 90 to 97 is going to be repeated in even the medium term.
So the "return to normal levels of lending to businesses" is not going to happen. Normal was not normal. Neither the banks nor consumers have the necessary appetites for debt.

If I am missing something I would truly appreciate being told what it is.

Actually, in a lot of ways the crash is not a bad thing in that it may restore values and reality to the wrecked ethical and moral compass of the West. To see an end to our appallingly wasteful habits, and the utterly useless jobs dished out by bloated local authorities, would be a considerable compensation for being a bit poorer.

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