Talking Point: Beware US aftershock
Recent reports have suggested that US data has been disappointing across many areas, such as jobs, retail sales and consumer confidence. The housing weakness has been particularly disturbing, as sales of new and existing US homes reached multi-year lows in July.
I believe that when the UK starts to feel the effects, it will result in a similar lower growth and possibly a return to recession, before being followed by a more sustained growth.
The West Midlands business community needs to be aware that the current economic situation may get worse before it gets better. I am therefore issuing the warning that we may be seeing the repercussions of the United States’ slowing economic growth within six to nine months.
I like to use the analogy that the recession from 2008 was like a major earthquake that is followed by smaller aftershocks and an occasional larger aftershock. The situation in the US at present has the potential to be one of those larger shocks.
The problem is that the bad practices within the banking sector that caused the recession from 2008 have still not been addressed. One lesson that we should have learnt from that time is that the world is no longer a series of separate economies such as Asia, China, the US and Europe, but we are now closer to being one economy and this has only happened in the last 30 to 50 years.
By comparison to the US, China is being regarded as the world’s new growth engine and while its expansion has also shown signs of slowing, it remains at a strong pace by western standards. China’s trade surplus has also surged to an 18 month high.
But I am concerned by the major reliance being placed upon China as a way out of the problems faced by the rest of the world. While I feel that this may be the case, I do not like putting all of my eggs in one basket.
This shows that it is time that the politicians faced the fact that the only way to control the banking sector is through global regulation and taxation so that they are prevented from playing one country off against another and from using their economic influence to affect a country’s development. It needs a real initiative to make a difference.
Nigel Reynolds is founder and principal of West Midlands accountancy practice Reynolds and Co.
