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How many shoots are green?

Thu, 29 Mar 2012 03:16:25 GMT

In January and February, after the eurozone was pulled back from the brink of collapse by the European Central Bank's trillion euro rescue of the European banking system, there was modest optimism that the UK would get back on course for something that looks more like a conventional recovery than the sickly economic performance we've experienced since the end of the recession in 2009.

The risk of a eurozone meltdown was blamed for the growing reluctance of British businesses to invest and hire. So as that risk subsided, the hope was that they would start to put to work the record £750bn of cash in their coffers.

Talking to investment bankers, some of the cash may be splashed on industry-consolidating takeovers. But although that may be good for shareholders, if it leads to profit-enhancing cost cuts, it's not great for employment: takeovers motivated by the potential for efficiency improvements normally lead to job losses.

And chatting to business leaders, although there was a brief wave of enthusiasm after a Budget that cut the taxes they care about most - corporation tax and the top rate of income tax - they remain reconciled to a grind that is not becoming significantly less hard.

The outlook in their biggest markets is not great. Much of southern Europe is in recession and there is contagion to northern Europe.

In Spain, where there is a national strike today, the risk of a banking and sovereign debt crisis remains a long way from being negligible.

Also eurozone banks may have been saved from total disaster, but they are not taking advantage of all that almost-free money from the European Central Bank to increase the flow of vital credit into the economy.

In China, a combination of political uncertainties and economic slowdown is striking and troubling. Those predicting financial Armageddon in the country with the biggest proportionate sovereign debt burden in the world, Japan, are no longer the nutters they once were.

In the US, the strength of the recovery is very difficult to gauge.

And although the oil price may have come off the top, the surge in the oil price has depleted the spending power of businesses and consumers.

As for the flow of news, it's hardly cheery.

Overnight we've learned of Balfour Beatty putting 12,000 staff in its construction services division on notice that their jobs are at risk - raising the possibility that around 4,000 of them may go.

There was the shocking announcement on Monday of 2,104 redundancies at Game Group, and the closure of 277 stores - adding further blight to hundreds of already blighted high streets and swelling the too-large ranks of the young unemployed.

As for Game's remaining 333 stores and 2,814 staff, we should know a bit more about prospects for them in the coming 24 hours or so.

Also the Sun has disclosed today that the two German power giants, RWE Npower and E.ON, are scrapping plans for a huge investment in a new nuclear power plant in Anglesey - a reminder that productivity enhancing and job-creating infrastructure projects have been promised, but many haven't actually started yet.

There are a lot of positive things to be said about how the structure of the British economy is improving. But by their very nature, structural reforms take time. We should resist the temptation to mistake escape from disaster, as happened in the eurozone, with a return to rude health.

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