This week we look at the continuing fallout from the Eurozone crisis for the Wales and UK economies.
It is not surprising that the Bank of England cut its growth forecast last week in light of the euro zone crisis. Whilst there has been recent good news regarding unemployment and UK exports outside the EU, the difficulties inside the euro zone and increasing competition in the flat UK market from EU imports are clearly having an effect on the UK economy.
When this is taken together with less optimistic forecasts regarding UK inflation then this again emphasises that the UK economy is likely to continue its low / no growth trajectory in the short term. In the UK of course the impact of the austerity measures will also continue to be a factor for the next few years.
Any increases in private consumer spending are likely to be largely offset by reduced government spending. There is, therefore, a huge reliance on the private sector to generate the confidence needed for more normal levels of growth, but little in recent news coming out of either the Eurozone or the UK economy to create such confidence.
Longer term the outlook is more hopeful if, and it is clearly a big if, the current eurozone crisis subsides and the major economic issues in the euro zone are dealt with. Only then will the EU starts to become a more attractive market again.
In the meantime it is to ‘non traditional export markets’ that the UK economy will be looking. This particularly the case given the lack of consensus on other measures that can practically stimulate growth.
In Wales, these debates can currently be seen in terms of potential UK government proposals for regional pay, which advocates see as stimulating private sector regional labour markets and critics argue would further reduce demand in the short to medium term in already economically slower growing parts of the UK. Conversely, it is acknowledged that many of the Welsh government’s levers are long term in nature, though there are innovative ideas being discussed to fund infrastructure projects that could assist the Welsh economy in the medium term.
Currently, however, it is a case of one step forward and one step back for the economy both in Wales and the UK.