UK catches a cold - waiting on a freezing platform Jamie Doward Sunday January 28, 2001 The men from Davos, they say, don't talk up a recession. The danger, they say, is that the world will end up talking itself bust, despite the fact that - actually - things are ticking along quite nicely, thank you very much. Instead the great and the good gathered at the World Economic Forum in Switzerland would rather we caught the Pollyanna bug, the ability to retain a sunny disposition against all the odds. Unfortunately, despite their best efforts to convince us of the numerous reasons to be cheerful, the facts don't really fit their case. The news that Alan Greenspan has performed a spectacular U-turn, coming out in favour of US tax cuts in a frantic bid to stimulate the American economy, paints a gloomy picture. The world's most powerful central banker has already cut US interest rates by half a percentage point this year. The fact that the committed monetarist has become an overnight convert to fiscal policy underlines the mounting seriousness of the situation. This has not escaped the attention of US consumers. According to the University of Michigan's Index of Consumer Sentiment, confidence among US customers is plunging. It dropped five points this month, following a nine-point slide in December.This was the third-largest two-month drop since the survey started in 1978. Significantly, the two steepest drops preceded the US recessions of 1980 and 1990. Admittedly, economists are divided on whether the US is heading for a full-blown recession or just a slowdown. But this is to miss the point, which is that the good times have stopped rolling. And the danger now is that a US slowdown will hit the fragile Far Eastern economies as they claw their way back from the abyss of two years ago. Many companies in the Far East, Japanese ones in particular, have failed to learn the lessons of the past. An alarming and growing debt mountain is a terrifying symbol of the region's continued resistance to widespread structural reform. But what of the UK? When the US sneezes we catch a cold, runs the clichi. But hang on, this time things are different, we are told by the optimists. There are no signs that the US's problems are being exported over here, they say. But unfortunately - again - the facts don't match the line. Britain ran up a record #2.8 billion trade deficit with countries outside the European Union last month. The main reason? A 10 per cent drop in exports to North America. All right, the US accounts for only 15 per cent of UK exports, but a slowdown across the Atlantic will still affect us - and not only for economic reasons. We look across the pond for our corporate inspiration, our business models, our entrepreneurial flair, our visions of the future. They may be thousands of miles away, but the tears lachrymose Americans shed into their lattes will be felt from Dover to Dundee. As the men from Davos know, economics is often a case of mind over matter. Friday's UK growth figures didn't bring much cheer. They showed that gross domestic product grew by only 0.3 per cent in the fourth quarter of last year, and 2.4 per cent year-on-year. The City had been predicting figures of 0.5 per cent and 3 per cent respectively, and the pessimists point out that economic growth is now at its slowest for two years. But the main reasons for the disappointing figures were wet weather and a slowdown in industrial production. The weather banjaxed the already crippled rail network, so the country came grinding to a halt - and UK production dropped. Friday's figures offer a definitive case for the UK benefiting from major infrastructure investment. When the economy suffers because of an ailing rail network, the fate of thousands of jobs is literally on the line. Observer _______________________________________________ Crashlist website: http://website.lineone.net/~resource_base
