Howard Davies: The MT Diary

The view from Greece; China's long march to be world No.1; can France stay in the race?

by Howard Davies
Last Updated: 21 Oct 2011

The British economy is rather dull just now. 'Flatlining' is the word in vogue. In other words, we have had no growth at all for six months and the prospect is for a sluggish recovery. It's not pretty, but it's not a Greek-style train-crash and the markets still seem sanguine about the value of Mr Osborne's IOUs.

So, seeking a bit of excitement, I went to have a look at a real crisis. That involved an 05.55 easyJet from Gatwick to Corfu, which makes you feel suicidal before you get there. Don't think of it unless you have no other option.

In fact, it is quite easy to find evidence of the pain the Greeks are experiencing. Just hop in a taxi and ask 'how's tricks?' You will find that tricks are not too hot: with diesel 30p a litre dearer than in London, it is tough to make money on Greek taxi fares, which don't have the 'tearing up twenties' feel of a London cab ride. The government in Athens has to load up on fuel duty, as it's about the only tax most Greeks haven't found a way of evading.

But, otherwise, the islands looked the same as ever from the cockpit of my elderly 30-foot cruiser. The only difference this year was that, to add insult to injury, the weather was upside-down. It was warmer and drier in London than in Corfu, and the sea was still quite chilly. I tried to warm up the Ionian Sea a little by throwing my phone overboard, having heard that the combination of seawater and an iPhone battery generates overheating on a pre-crisis scale. I should probably have warned my mother, who was talking at the time, that I planned to carry out this experiment. I think she is still chatting to the fish.

There has been a lot of coverage of Greece in the pink pages of late - maybe too much, given its size. The increase in China's imports in 2010 was larger than the entire Greek GDP that year. This was one of the 'amaze your friends' facts I learnt at a conference in Singapore to mark the 30th birthday of its Sovereign Wealth Fund (which I advise).

China's economy recently accelerated past Japan's to become the second largest in the world. That wasn't too hard, as the Japanese one is contracting rapidly after the tsunami. The next milestone is the moment when the Chinese overtake the US. The consensus at the conference was that it would happen in 2025, which is not too far off, and that by 2060 their economy will be three times as big. I may not be around to check that forecast, but the near-term prospect is solid and China is the global locomotive. This is positive for global growth, but it is not good news for pigs. China already consumes 46% of the world's pork (you can win a bet in the wine bar with that stat).

Some countries are taking full advantage of the boom; others are not. Since 2007, German exports have almost doubled in volume, while ours have fallen slightly. That is not encouraging for our growth rate, or for sterling. If we don't up our game soon, we can kiss goodbye to the great British breakfast. All the pigs will be stir-fried.

Viewed from Asia, the UK is quickly disappearing off the charts. Jim O'Neill of G*****n S***s (this is a family magazine so best not to spell it out) pointed out that the total growth of the UK economy in the past decade was only half that of Brazil and two-thirds of Russia's. His forecasts for the next decade suggest that the value of our growth will be lower than in Turkey, Mexico or Indonesia. So we are beginning to be listed in the 'other' category. Soon, we may be smaller than GS itself, though still a touch more popular perhaps.

The eurozone is still significant, even in Asia, and in spite of its problems. But people there are puzzled as to how the monetary union can survive. Their concern centres on France, not Greece, which is neither here nor there in the great scheme of things. The big question is whether the French can keep up with the Germans. Their exports to China have risen, but only by 10% or so. Louis Vuitton sells well, but most of its bags are knocked off in a sweatshop in Chongqing.

Paris (my next stop) in the spring is always delightful, but our Gallic voisins are pensive. The political scene is very confusing, with the prospect of a run-off next year between Sarkozy and the National Front, led by the plausible Marine Le Pen, now that Dominique Strauss-Kahn has decided to spend more time with his lawyers. A tricky choice for anyone to the right of centre. And the economy, while a little more shapely than our flatline, is lagging their neighbour's across the Rhine, with no chance of a devaluation to help with competitiveness. It's one thing for a few small countries in the south to be off the pace, but if the French drop out of the German-led peloton there could be real trouble.

'Zut, alors', as the French don't say. This could be tres grave, as they do say, especially if they are called upon to share the burden of further bail-outs of their Club Med cousins. (You don't hear much about the Club Med these days as a political concept). The Parisian velibs (their Boris bikes) are so ubiquitous that I cannot bring you first-hand information on the crucial opinions of their taxi drivers. But I wager they are almost as gloomy as their Corfiot counterparts. France could start to get interesting again soon. Regardez cette espace.

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