Export led growth, Mr Cameron?
This week sees another kick in the face for the Tory’s economic strategy. Government cuts may have sucked enough demand out of the UK economy to help keep inflation down here (CPI’s just fallen from 4.4% to 4%). But China and India are a different matter entirely.
As commodity prices continue to rise, the FT reports a ‘surge in inflation’ in the world’s two biggest countries, with prices up by 5.4% in China, and 9% in India. With developing countries cutting their spending (or raising taxes) to deal with this inflation, just as interest rates on the Euro go up, the prospect of David Cameron’s fated ‘export led growth’ surely now lies in tatters?
To put it another way – who exactly are we supposed to be exporting to?
While the German economy is built to a certain extent on the back of specialist exports to China, Britain hasn’t secured this market so far. And it now seems Chinese attempts to combat inflation could ensure we don’t have the same chance to gain access to this rapidly growing economy.
We may have believed that we could increase our exports to the EU. But austerity across the continent means it remains on the brink of collapse, and the recent decision to raise euro interest rates in order to combat inflation caused by problems in the food and fuel markets will suck demand even further from the economy.
When the Tories came to power, they pointed to 1990s Canada as an example of a country that they believed had gone through a period of significant cuts and come through relatively successfully. Now, of course, by any civilised measure, Canada’s cuts were a disaster. But even if we accept that the Canadian route is one we’d like to follow, they sat next to the USA during its roaring 90’s. The idea that they could keep their economy afloat through exports wasn’t completely ludicrous.
But we aren’t in the 90s, and we aren’t right next to the USA. The main potential recipients of UK exports are themselves going through the doldrums – either because of a banker imposed credit crunch and then self imposed austerity, or because of global inflation driven partly by our failure to control speculation.
Cutting jobs to deal with the unemployment causing our deficit is clearly a ludicrous idea. But it is particularly insane when your strategy for replacing these jobs depends on exporting more to countries who themselves are buying less.
With things going from bad to worse, it looks like a tough year ahead.