Alistair Darling can at least console himself with the fact that the UK is not enduring the downturn in isolation.
DEEP in the inner recesses of the Treasury, a tiny flame clings to a solitary sputtering candle. Its weak and uncertain light falls on a globe by the side of the Chancellor's desk. Alistair Darling, shivering in an overcoat, peers through the gloom a
nd gives the globe a spin. The faint shadow of a smile steals across his troubled face. The Chancellor has hit on the one faintly uplifting realisation in a seemingly unending torrent of bleak and utterly miserable economic news: it's no better elsewhere.
Grim though the broader implications are, what comfort this realisation brings. It's not just the thought that neither he nor the Prime Minister can fairly be blamed for a downturn that is global in scope. There is also the desperate hope that someone else will surely be able to come up with solutions, because the Treasury's cupboard is bare.
Could anywhere be worse than Britain? A mortgage lending slump; the worst fall in house prices since the 1930s; a crisis across the housebuilding industry with fears that 50,000 jobs in the sector may be lost by the end of the year; plunging consumer confidence; renewed worries about the health of the banking sector – and the oil price soaring to a new record despite all evidence of an economy hurtling towards recession.
To where can we go this summer to escape the horrible gloom? As we look across the world this weekend, it is no better elsewhere.
Let's start with the United States, the world's largest economy. Its interest rates have been slashed to 2% and taxpayers sent a $600-a-head rebate to help boost the economy. Here in Britain we have only been able to look on in envy. Yet neither of these levers has lifted the economy. America's housing market continues to slide, with falling sales and prices. Airlines and car makers are being battered by the oil price surge. And arguably most worrying of all, the financial sector is suffering a further flight of confidence.
Overall growth in US GDP is forecast to slide from 2.2% in 2007 to 2.1% this year and 1.2% next. But this rather masks the ferocity of the downturn.
The latest report of the National Association of Realtors shows its pending home sales index fell 4.7% in May, 14% below year-ago levels to the third-lowest reading on record. Economist Mark Vitner of Wachovia Corporation warns that house sales are likely to fall to their lowest point late this year or early next and that any recovery is likely to be weak until at least 2010. The Standard & Poor's/Case-Shiller home price index of 20 cities fell by 15.3% in April compared with a year ago, dropping prices to their lowest levels since August 2004.
This bleak news triggered further slides in the shares of America's giant mortgage finance companies Fannie Mae and Freddie Mac to their lowest levels since 1991. The US government was reported to be pondering a takeover if their funding problems worsen. The two government-sponsored entities have the implicit backing of Washington, but have been under growing pressure as investors questioned the companies' ability to raise enough capital to stay afloat. The administration is said to be considering placing the companies into 'conservatorship', under which the shares would be worth little or nothing, and the losses on the home loans they own or guarantee – what amounts to half of all US mortgages – would be paid by taxpayers.
In another sign of how ugly this downturn is proving, shares of car giant General Motors slid to a 55-year low last week amid worries over the group's viability, prompting boardroom denials of a possible bankruptcy filing.
But what of Europe, whose economies are not so dependent on the fortunes of the housing market? Sadly, the news is little better. Germany, the eurozone's largest economy, got off to a cracking start to the year with unexpectedly good 1.5% quarter-on-quarter growth in the first three months – the strongest thrust since 1996. But since April it has been downhill. According to the Berlin-based DIW think tank, growth is reckoned to have slowed to just 0.2% and it is forecasting a similarly anaemic performance in the third quarter. Recent surveys have shown that business confidence is declining as oil prices soar while the euro remains at near-record levels against the dollar. Figures last week showed German exports fell by 3.2% in May compared with the previous month, the strongest monthly decline since February 2005.
France is suffering a clear downturn. Industrial output fell 2.6% on a monthly basis in May, against forecasts of a mere 0.5% drop. Household consumption was markedly weaker than expected in the first quarter, and households are starting to fear rising unemployment. New housing starts dropped 10.3% year on year in the first three months and prices are falling. Overall GDP is forecast by HSBC to fall from 2.1% growth in 2007 to 1.5% this year and 1.1% next.
Spain, the eurozone's fourth largest economy, is in an "almost recession", industry minister Miguel Sebastián said last week, using the bleakest language so far by any member of the government to describe the rapidly deteriorating economy. Economy minister Pedro Solbes has already warned that second-quarter economic growth would be slower than the already sluggish 0.3% quarterly rate recorded in the first three months. A 13-year span of prosperity driven by a construction boom has shuddered to a close with a dramatic slump in building and property activity. Spain is set for zero or negative growth if oil prices keep rising. Car sales plummeted 31% last month and mortgage defaults are set to rise to 2% by the year end – more than double last year.
Don't go to Italy if it's good news you're looking for. Italian industrial output dropped 1.4% month on month in May, much weaker than expected. In the first five months of this year Italian output fell 1.1% from the same period of 2007. Economy minister Giulio Tremonti says he expects growth of "around zero" this year, below an official forecast of 0.5%.
Ireland is fast losing its lustre as the eurozone's tiger economy. Growth has slowed dramatically due to sharp falls in the property and construction sector, and the economy is set to contract for the first time since the mid-1980s.
The downturn has forced the government to cut back on spending plans to cope with growing fears of recession and a sharp drop in tax revenues. The civil service payroll is to be cut by 3% and pay rises for cabinet ministers and top civil servants have been delayed until at least 2010.
Expect no economic sunshine in Japan, where growth is forecast to slide from 2.1% in 2007 to 1.3% next. The economy is already thought to have entered recession from the first quarter of this year. Industrial output declined in the first three months and is expected to keep falling. Inflation has soared to the highest since August 1993.
So is any country doing well? For economic good cheer, book your flight to Saudi Arabia. Its oil output over 2008-09 is likely to be worth in excess of $850bn, 50% more than it generated over the entire 1990s. This revenue surge, says HSBC economist Simon Williams, "is an avalanche, not a windfall". GDP is predicted to soar by 50% this year and a further 14% next. Even allowing for a surge in public spending, the kingdom will generate a fiscal surplus close to 30% of GDP – a record high.
In the shimmering heat of Arabia there is economic cheer aplenty. Here are numbers that Alistair Darling, shivering over that sputtering Treasury candle, can only dream of. The sand, of which the Saudis have so much, seems to be running out for him.
