Monday, 8 December 2008

Confusing Guardian article on economies

Apparently due to the falling pound the UK will have a smaller economy than Italy in 2009 (and France) so say the CEBR (btw I've checked the numbers and they're right as long as the pound is around or below 1.1 euros). This is not a well written article, I'm afraid to say, as it doesn't make clear the rather artificial nature of currency-movements in judging economic size. Sometimes this might not matter, but as the article doesn't make this distinction clear, the last paragraph will seem rather odd to many readers:

Richard Snook, one of the authors of the report, said: "The UK economy is likely to be the hardest hit by the credit crunch due to its reliance on consumer borrowing and the financial sector for growth. We see the economy taking four-and-a-half years to return to the peak in the second quarter of 2008. Only the Italian economy, which is beset by structural weaknesses, is set to do worse."

Only the Italian economy will do worse? Eh? I thought it was doing better. The Times article is better, but not much.

Also the quote from the CEBR staff member:

Ben Read, managing economist at the CEBR, said: "The UK economy overtook both Italy and France in the 1990s. However, this position was based on an over-valued sterling and debt-fuelled growth; it is set to be reversed."

is also dubious. On a PPP basis the UK economy is quite a bit larger than Italy's, and whilst this might be due to an error in measuring PPP, if the CEBR staff member believes this it should be spelt out.

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