The global recession can be traced back to the collapse of the sub-prime mortgage market in America and so it’s hardly surprising that one of the biggest sufferers of this global crisis has been the housing market. House prices in the UK had, for some months, been in apparent free-fall, but they now appear to have stabilised. Some estate agents report prices beginning to increase, but others say they’re still falling.
Whilst lower prices should be an encouraging sign for first-time-buyers, there is another obstacle in their way. Mortgage lenders have been requiring large deposits and, unsurprisingly, have become more vigilant about whom they lend to and how much. Read the articles below that look at the crisis in the housing market and consider the impact this has had on the wider economy.
Experts far more upbeat about UK house market The Herald, Ian McConnell (26/6/09)
Gloomy CIPS data shows further woes for construction firms Construction News, Nick Whitten (2/10/08)
Construction contracts at slowest pace for seven months Construction News, Nick Whitten (5/5/09)
House prices decline again in May BBC News (26/6/09)
Mortgage lending falls back again BBC News (18/6/09)
More fixed-rate mortgages go up BBC News (16/6/09)
Housing market needs ‘feel-good factor’ to recover CityWire, Nicholas Paler (26/6/09)
Housing market set for recovery Exec Digital, Ben Lobel (26/6/09)
Home-ownership ‘aspirations hit’ BBC News (15/6/09)
House prices fall 1.7 percent in April Exec Digital (6/5/09)
Spring bounce in mortgage lending BBC News (11/6/09)
Is the first rung on the property ladder broken? BBC News, Kevin Peachey (27/4/09)
Lack of affordability may slow housing sector recovery RLA News Service (25/6/09)
See the following two sites for house price data in the UK:
Halifax House Price data from the Lloyds Banking Group
Nationwide House Price data
Questions
- Why has the collapse of the housing market had much wider repercussions on the UK economy? Consider the impact on construction, solicitors, surveyors.
- Have any groups benefited from falling house prices?
- How has the UK’s monetary policy in particular helped to stimulate the UK housing market? Has it been successful?
- Why are lenders so reluctant to lend? Is this a direct result of the sub-prime crisis in America?
- What is the meaning of ‘negative equity’? How does being in a situation of negative equity affect people’s behaviour?
Even in the current gloomy economic climate, there is something else that has grabbed media attention – the outbreak of swine flu. This is of particular concern, given the WHO’s announcement that we are in an H1N1 flu pandemic. The symptoms and health risks have been widely broadcast, but it is not just this that governments are concerned about. The economies of some countries, in particular Mexico, have been suffering. ‘Swine flu has dealt a major blow to Mexico’s already battered economy’. Many countries have issued advice to businesses on dealing with a potential pandemic and some countries are facing trade restrictions. It’s important to consider the economic consequences of this outbreak in a time of global recession. How will some of the worst hit industries cope and what are the costs that firms could face if the situation gets worse? The following articles explore the issues.
Economic impact of swine flu BBC News: World News America (4/5/09)
Advice to businesses on swine flu BBC News (4/5/09)
Swine flu nations make trade pleaBBC News (3/5/09)
WTO protectionism report to feature swine flue bans The Economist (12/6/09)
Mexico economy squeezed by swine flu BBC News (30/4/09)
Swine flu fears hit travel shares BBC News (27/4/09)
Swine flu: Four ETFs to watch Seeking Alpha (12/6/09)
Employers have to pay for swine flu quarantines Scoop Business: Independent News (12/6/09)
Questions
- Which industries are the most affected by the outbreak of swine flu?
- What are some of the costs that businesses will face following the WHO’s announcement that we are in a flu pandemic?
- Some of the articles talk about possible trade restrictions. What are the arguments (a) for (b) against protectionist measures in these circumstances?
- How will this flu pandemic add to the global crisis we are currently facing? What will happen to share prices, to tourism, to people’s expectations?
- Do you think that firms have a social responsibility to deal with this pandemic?
- Will there be additional health costs and who should bear them? What do you think will be the impact on the NHS, given its method of provision and finance?
- Do you think that this pandemic will affect the global economy’s ability to recover from this recession?
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 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.