The housing market has been very volatile over the past year or so. House prices crashed, but then appeared to stabilise. Since then, however, different sources have given very different opinions and predictions about future movements. According to Nationwide Building Society, house prices have increased by an average of £53 a day during September, but others suggest that they remain stable and that they may fall again in 2010.
Not only are house prices important to those buying and selling, but the state of the housing market is also crucial for the recovery of the economy. For example, the construction industry has suffered over the past year and, as of the 2nd October 2009, unemployment in this sector stood at 17.1%. As more and more workers lose their jobs, their disposable income falls and hence demand in the economy is affected. With the possibility of an election debate between the party leaders, many will be waiting to see what their strategies are to revitalise a struggling economy.
House prices rise an average of £53 a day’ Daily Record, Clinton Manning (3/10/09)
Mortgage approvals dip in August BBC News (29/9/09)
Construction contracts at slowest pace for seven months Construction News, Nick Whitten (5/5/09)
House sales ‘stalled’ in August BBC News (22/9/09)
Housing market needs ‘feel-good’ factor to recover City Wire, Nicholas Paler (26/6/09)
Double whammy for first-timers as prices stabilise and loans dry up Scotsman, Jeff Salway (3/10/09)
Head-to-head view on house prices BBC News, Kevin Peachey (27/8/09)
UK construction industry still contracting, says Cips Guardian, Kathryn Hopkins (2/10/09)
House prices see ‘slight decline’ BBC News (28/9/09)
House prices ‘back to 2008 level’ BBC News (2/10/09)
Construction unemployment rises to 17.1% HomeTown Sources (2/10/09)
House prices up – but so are insolvencies Management Today (2/10/09)
Financial shadow cast by city apartments BBC News (8/10/09)
For house price data see:
Nationwide House Prices
Halifax House Price Index from the Lloyds Banking Group
Housing Market and House Prices from the Department of Communites and Local Government
Questions
- Why are recent movements in the housing market going to be a problem for first-time buyers?
- The ‘Stamp duty holiday’ will soon come to an end. What do you think will be the impact on the demand for and supply of houses and hence equilibrium prices over the next 6 months?
- One of the reasons why house prices have stabilised is a lack of supply. How does this affect equilibrium prices?
- Why is the economy so affected by changes in house prices? Think about what happens when construction workers lose their jobs and how this affects aggregate demand. Then consider how the macroeconomy will be affected.
- When demand for houses increases, why do prices increase so rapidly? Consider elasticity.
All nations are interdependent and few have escaped the recent economic turmoil that began with the collapse of the sub-prime mortgage market in America. Businesses have gone under; interest rates have been cut and then cut again; profits have fallen; unemployment has risen and expectations have remained gloomy.
But, what’s the latest? How is the British economy faring and what about the rest of the world? Some sources suggest that we are already in a recovery, whereas others suggest that the current downturn is not yet over. House prices recovered somewhat in July, but various sources suggest that they experienced their biggest fall in August. The following articles look at recent economic developments.
Job cuts at Vauxhall likely as GM agrees sale to Magna Telegraph (10/9/09)
A look at Economic developments around the globe The Associated Press (10/9/09)
BoE holds QE at 175 bln stg, rates at 0.5 pct Reuters (10/9/09)
Kesa’s UK recovery hit by European slowdown Times Online (10/9/09)
Top US banker criticises bonuses BBC News (9/9/09)
Austrian GDP contraction slowed in Q2 Reuters (10/9/09)
Europe and America’s economies to beat UK, OECD says Telegraph (4/9/09)
Britain will be behind rest of world in emerging from recession Times Online (3/9/09)
Bank of England holds rates at 0.5pc and QE at £175 bn The Telegraph (10/9/09)
Questions
- Do you think the evidence suggests that the outlook for the global economy is improving?
- Why will Britain probably take longer to recover from the recession than other major economies?
- What is the theory behind low interest rates helping the economic recovery?
- Which policies have the UK and other governments used to tackle this economic downturn? Would any others have been more successful?
- In what ways and for what reasons are countries economically interdependent?
The 2009 quarter 2 statistics on the French, German and Japanese economies show that economic growth has returned. Other countries, meanwhile, such as the UK, USA, Italy and Spain, are still in recession (see the Guardian’s Recession watch: which nations’ GDP is still going down?). Their rate of decline, however, is slowing.
Does this mean that the global economy is now recovering? And why do countries, such as France and Germany, seem to be more successful in pulling out of recession? Is it to do with the structure of their economies, or the macroeconomic policies theory have pursued, or merely that the time path of countries’ move into and out of recession is not totally synchronised? The following articles look at the evidence and the explanations.
France and Germany exit recession BBC News (13/8/09)
France and Germany exit recession (video), (video 2) BBC News (13/8/09)
Why are France and Germany out of recession? BBC News (13/8/09)
Hong Kong emerges from recession BBC News (14/8/09)
China economy shows improvement BBC News (11/8/09)
Japan’s economy leaves recession BBC News (17/8/09)
Japan returns to growth (video) Reuters (17/8/09)
Does Japan offer hope around the world? BBC News (17/8/09)
France and Germany pull out of recession (video) France 24 (13/8/09)
Europe buoyed by returning growth (video) Channel 4 News (10/8/09)
France and Germany beat Britain out of recession The Herald (14/8/09)
Will Germany Beat the U.S. to Recovery? BusinessWeek (14/8/09)
France and Germany Climb Out of Recession Time (13/8/09)
France and Germany lead the West out of recession Telegraph (13/8/09)
Recession over for France and Germany Independent (13/8/09)
Sean O’Grady: Brown must resent France and Germany’s growth Independent (14/8/09)
Hamish McRae: Recession talk is over, now the recovery speculation begins… Independent (14/8/09)
Europe’s economies: Sailing away The Economist (13/8/09)
Listen to the second part (from 11 min 40 sec) of the following podcast , which dicusses whether the recovery in France and Japan is likely to be sustained:
The Business Guardian podcast> (19/8/09)
Data for the OECD countries can be found in GDP in the OECD area stabilised in the second quarter of 2009 OECD Press Release (19/8/09)
Questions
- Why was the German economy the hardest hit of the major economies of the developed world?
- Why are the French and German economies recovering while the UK and US economies are still in recession?
- What will determine whether the recovery in France and Germany will be sustained?
- What will be the economic implications of a divergence of the growth rates of the economies of the eurozone?
The traditional macroeconomic issues are well-known: unemployment, inflation, economic growth and the balance of payments. However, the environment, and specifically climate change, have become increasingly important objectives for the global economy. Over recent months, many countries have announced new policies and measures to tackle climate change.
The costs of not tackling climate change are well-documented, but what about the costs of actually tackling it? Why is a changing climate receiving such attention and what are the economics behind this problem? The articles below consider this important issue.
Tougher climate target unveiled BBC News (16/10/08)
Brown proposes £60 billion climate fund BBC News (26/6/09)
EU says tackling climate change will cost global economy €400 billion a year Irish Times, Frank McDonald (26/6/09)
Obama makes 11th-hour climate change push Washington AFP, Ammenaul Parisse (25/6/09)
UK to outline emission cut plans BBC News (26/6/09)
What’s new in the EU: EU examines impact of climate change on jobs The Jerusalem Post, Ari Syrquin (25/6/09)
Climate change: reducing risks and costs The Chronicle Herald, Jennifer Graham (25/6/09)
Obama to regulate ‘pollutant’ CO2 BBC News (17/4/09)
Billions face climate change risk BBC News (6/5/07)
Obama vows investment in science BBC News (27/4/09)
Japan sets ‘weak’ climate target BBC News (10/6/09)
Questions
- Why is climate change an example of market failure?
- Apart from imposing limits on emissions, what other interventionist policies could be used? What are the advantages and disadvantages of each of them?
- According to the EU, the cost of tackling climate change is very high. So, why are we doing it? See if you can carry out a cost-benefit analysis!
- Why is climate change presenting a problem for insurance companies? Can it be overcome?
- Why is finance such an issue between developed and developing countries in relation to tackling climate change?
- What is the likely impact of climate changing policies on the labour market? Will we be able to adapt in the current economic crisis?
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?