Recent evidence from the Institute of Economic and Social Research shows that the UK economy grew in April and May and that 2009 Quarter 2 figures will also show a rise in output. Although annual growth in GDP will still be negative, as the previous three quarters were all negative, recent growth suggests that the recession might have ‘bottomed out’ and that recovery is beginning.
Of course, it’s early days to tell whether these are real ‘green shoots’ or whether the economy will slide back into negative growth once more, but confidence is returning. One sign of this is the recent appreciation of sterling (see). The following articles look the rise of the pound, why it is occurring and whether the green shoots will flourish or wither.
Pound hits 2009 high against euro BBC News (11/6/09)
Sterling: what’s the outlook now? Telegraph (11/6/09)
Sterling hits year’s high versus euro ThisIsMoney (11/6/09)
Sterling leaves euro in its wake on hopes of UK recovery The Herald (11/6/09)
Jeremy Warner: Recession may be over but not the pain Independent (11/6/09)
Taking stock of the different economic signals Times Online (11/6/09)
Questions
- Why has the pound been appreciating?
- What are the implications of an appreciation of the pound for the UK economy?
- Why is the dollar likely to fall as the prospects for the world economy brighten?
- What evidence is there that the UK economy is now beginning to recover? What will determine whether or not the recovery will be sustained?
With the world economy in recession, major exporting countries are suffering more than many, especially exporters of high-quality manufactured products, many of which have a high income elasticity of demand. Germany, the world’s largest exporter, has been particularly hard hit. In the year to April 2009, the value of German exports fell by 28.7 per cent. The following articles look at the data and some of the explanations.
German exports in April 2009: –28.7% on April 2008 Destatis (9/6/09)
German exports plunge amid economic slowdown DW-World (9/6/09)
Weak German economic data dash early recovery hopes Monsters and Critics (9/6/09)
German industry output disappoints, falling 1.9 pct Guardian (9/6/09)
See also this video on the recession in the EU: EU recession ‘deeper than expected’ BBC News (15/5/09)
Questions
- Why have German exports fallen considerably more than German GDP? How can the accelerator theory help to explain the fall in German exports?
- If economic sentiment recovers in Germany, how will this affect (a) aggregate demand; (b) imports; (c) exports?
- Find out what has happened to the euro exchange rate index and assess whether movements in the euro have contributed to Germany’s export performance (see for example the Bank of England Statistical Interactive Database).
The pound has been rising against the US dollar recently. And as the dollar has fallen, so the prices of various commodities, such as gold and silver, have been rising. So what are the reasons for these currency and commodity price movements? The simple answer is that they merely reflect changes in demand and supply. But why have demand and supply been changing? Are there changes in the underlying economic fundamentals, or do they largely reflect speculation in times of uncertainty and resulting market overcorrection? The following articles address these questions.
Sterling rises on hopes of recovery Financial Times (4/6/09)
Jeremy Warner: Dollar weakness is a sign that things are on the mend Independent (4/6/09)
Stephanie Flanders Blog: What goes down… BBC News (3/6/09)
Dollar on the rack International Business Times (1/6/09)
Sterling hits six-month high against the dollar Times Online (29/5/09)
Exchange rates: What next for the pound? This is Money (2/6/09)
Gold News BullionVault (3/6/09)
The Top 10 Reasons to Hold Gold, Bar None! The Motley Fool (2/6/09)
Questions
- Explain why the pound been rising strongly against the dollar.
- What is likely to happen to the exchange rate of the pound against the dollar and the euro over the next few months?
- If it were possible to predict the future exchange rate today, what would happen to the exchange rate today?
- Why might it be a good time to buy gold? Why might it be too late?
The following link is to a video charting the growth of China and the UK over the past 200 years and projecting forward to 2014. The video is from Gapminder, a site that allows you to compare countries’ performance in terms of a large range of economic and social indicators.
The introduction to this video states, “200 years ago, United Kingdom was a leading nation of the world – both in regard to health and economy. In this video, Hans Rosling details UK’s 200-year journey, to present time, and also shows that China, in the coming five years, will narrow the gap to UK faster than ever.”
Crisis narrows China–UK gap Hans Rosling, Gapminder (2/6/09)
Questions
- Why has the gap in GDP per head narrowed between the China and the UK?
- Why is the gap likely to narrow further over the next five years?
- Identify the factors that will determine how much the gap is likely to narrow in this period.
Are businesses concerned solely with profits or sales, or do they take broader social objectives into account? Is ‘corporate social responsibility’ (CSR) a key part of their decision-making? In other words, do they care about the welfare of their employees, about being honest with shareholders and customers, about being energy efficient and non-polluting and about caring for local communities? In general, do they make a genuine attempt to be ethical? One view is that they should do this because, in the end, it’s profitable to do so. Another view is that they should be socially responsible because they have a duty to be so.
In the current economic climate, CSR is being tested. Is CSR something that should be inextricably part of everything a firm does? Or is it a luxury that can be dispensed with when times get tough? The first article below looks at this issue and comes to a fairly optimistic conclusion. The other articles look at approaches to CSR in various countries.
A stress test for good intentions The Economist (14/5/09)
The Future of CSR: 2009 report CSR Asia (05/09) (This may take a little while to load: try right clicking and saving it before opening)
CSR efforts score well in trusted brand poll BusinessMirror (Philippines) (29/5/09)
Minister Presents Corporate Responsibility Index Awards Australia.TO (28/5/09)
CSRwire Welcomes New Members to its Global Network of CSR News and Information CRSwire (27/5/09)
Straight Talk about Corporate Social Responsibility The Huffington Post (13/5/09)
Social Responsibility WA Today
See also the UK government’s CSR site Corporate Social Responsibility
and Business in the Community’s Corporate Responsibility Index
Questions
- Explain how self-interest can go some way to making companies more socially responsible.
- Why may the free market fail to provide the optimum level of CSR?
- To what extent does the current recession threaten CSR? Are there any ways in which it could encourage companies to be more socially responsible?
