The third quarter GDP figures released on November lst surpassed expectations for once. The economy grew by 0.5%, the fastest quarterly rate for more than a year. The estimate was flattered by a bounce back from a weak second quarter, when output was temporarily depressed by the royal wedding and by interruptions to supplies after the Japanese earthquake. In any case, growing anxiety about a double-dip recession meant the half-decent growth figures were barely celebrated.
Prospects for the fourth quarter are dim. The Bank of England’s monetary-policy committee reckons that output will be flat, but even that may prove optimistic. The closely watched purchasing managers’ index for manufacturing plunged from 50.8 to 47.4 in October (a reading below 50 points to falling activity). Order books are slimmer. Manufacturers say nervous customers are delaying new purchases and running down stocks.
The immediate source of trouble is the euro area, which is struggling to stop the spread of its sovereign debt cr. Two-fifths of Britain’s exports go to the 17-country currency block. Even Germany, the euro- zone’s economic motor and its most credit worthy sovereign, has been dragged down by uncertainty over Greece’s bail-out (求助) and the failed efforts to protect Italy and Spain. German manufacturing shrank in October, according to the purchasing managers’ index, and unemployment rose for the first time in 18 months.
Britain cannot easily shake off trouble in its export markets. Domestic demand is weak because the government and many householders are struggling with debts of their own. And Britain’s stake in the Eurozone is not confined to trade. British banks are exposed to the region’s trouble spots. Their loans to Ireland, Spain, Italy, Portugal and Greece, the five countries on the euro-zone’s circumference whose sovereign debts are under question by bond markets, amount to ＄350 billion, reckons the Bank for International Settlements (BIS), the bank for central banks. A tenth of that was public debt: a larger part was loans to banks; most of it was lending to businesses and consumers.
A cynic’s view of the euro-zone’s sovereign bail-out schemes is that they were put in place to preserve French and German banks from losses. That suspicion, along with a widespread conviction among Conservative politicians that the euro is doomed, helps explain why some is Britain complain about the country’s notional exposure through IMF membership (even though the fund is always first in the queue to get its money back).
The value of British bank loans to the euro-zone periphery (周围) looks small compared to the ＄680 billion owed to French banks, equivalent to almost a quarter to France’s GDP. But Britain’s bank exposure is still huge, and a shade larger as a share of GDP, at 14.7%, than Germany’s.
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