Back in January I went to a seminar organised by Société Générale featuring talks by long-time bears (or common sense thinkers – depends how you look at it) Albert Edwards and Dylan Grice. It was headlined 2012: The Final Year of Pain and Disappointment.
We can’t yet be sure if they are right about the final year bit. But they were bang on with the pain and disappointment bit. For the first few months of the year it looked like we might get a relatively relaxed spring. Europe was quiet; America was growing; China looked stable; and even the Japanese market was soaring.
Not any more. Now Greece is in meltdown with Spain not far behind. There is a growing consensus that the eurozone will soon split – the Treasury, the Bank of England and the Financial Services Authority have even been talking about how to deal with a Greek departure, and De La Rue is refusing to comment on whether it is or is not designing new drachma notes.
At the same time, the one-time saviours of the economic world are turning out to be just as sensitive to crisis and slowdown as the rest of us. In India, investment is falling; inflation is back into double digits; the public deficit is high (5.8% of GDP); industrial output actually fell 3.5% in March; and overall GDP growth is down to around 6%.
Then there’s China. It is hard to tell what exactly is happening in China, but what is clear from non-official data is that growth is slowing.
Take cars. Bloomberg quotes Su Hui of China’s Automobile Dealers’ Association as saying that “unsold cars are crowding deal lots in cities from Guangzhou in the south to Xi’an in the west.”
Or chemicals. On his blog at Icis.com Paul Hodges looks at polyethylene, demand for which has been a “reliable leading indicator for the economy”. It rose 50% during the stoking of China’s credit bubble between 2008 and 2010. Now it’s falling. If we don’t have China to create the demand that might pull us clear of the wreckage of our own credit bubbles there isn’t much else to rest short-term hope on.
What really worries me, though, is what we are doing in Britain as all this unfolds. We are jumping with joy because VAT is not going to go up as much as we thought it might on pasties, or occupying ourselves lobbying George Osborne to keep on letting us hypothecate taxes to our hearts content via charity-tax relief.
It seems impossible that the world’s current crises (from Syria to Spain and at home) could be happening in such an atmosphere of triviality. So much so that most of us probably assume that behind the scenes, something else is happening – that Osborne has a plan (preferably to set growth free by slashing taxes and spending), that the IMF has a plan, that the UN has a plan.
So far the evidence that any of them do isn’t compelling. I started this year considerably more optimistic than Edwards and Grice. I won’t make that mistake again.