Despite the difficulties ahead, net exports could prove a route to recovery.
The British economy, poised uneasily between recovery and slump, is a forecaster's nightmare. The Governor of the Bank of England's admission that he had no clear idea of where the economy was going was merely an honest expression of the dilemma facing economists. Still, as we move into a new year, we can try.
The slump school has several strings to its bow. British consumers, overburdened with debt and watching the biggest and most tangible element of their wealth, housing, fall in value, could remain in retrenchment mode for years to come. The ratio of personal debt to income, which increased sharply from around 60% to 100% during the 1980s (and has remained at this high level), may be well above its long-run equilibrium. Suppose that, in aggregate, consumers feel comfortable with a debt-income ratio of 85% then for the forseeable future a significant proportion of income growth will be directed towards repaying debt.
The slumpers would also point to the effect on industry of the recession. Capacity utilisation may not be a problem, but a downturn of post-war record length has plainly held back some investment in state-of-the-art technology. One of the more worrying aspects of the past three years has been that, as the chart shows, with the exception of a brief period over the winter of 1990-1, import penetration has continued to increase, even as domestic demand has been falling.
Allied to this, recession fatigue has set in, along with the morale-sapping effect of several false recovery dawns. Every time a hoped-for upturn has proved to be little more that a gleam in the Chancellor of Exchequer's eye, businesses became more suspicious next time round. Like the boy who cried wolf, the politician who predicts recovery too often risks being ignored when the conditions for an upturn are finally achieved.
There is a self-feeding nature to prolonged recession. Apart from the twin effects of debt and falling wealth, consumers may lose the buying habit. If there are no Joneses to keep up with, and if manufacturers and retailers are still trying to off-load old stock at low prices, a part of the urge to consume is removed.
The slump school can also bring in the international dimension in support of its case. The American economy has, for a year, had the kind of stimulus, in the form of low interest rates and a weak currency, now available to Britain. And yet the US recovery has been at best unconvincing, at worst non-existent. Add in the clear signs of a sharp slowdown in the economies of continental Europe, the bursting of Japan's bubble economy and growing tensions over world trade, and there is precious little, from beyond Britain's shores, to be cheerful about.
But, and it may be a big but, economies do recover. Let us agree, for a moment, with the slump school about the prospective weakness of consumer spending.
Suppose that consumer spending growth over the next three years averages a mere 1% a year. This sounds feeble, and it is. But against the consumer boom of the 1980s when retail sales rose in real terms by an average of 3.4%, it smacks of austerity. But it could still be consistent with a substantial recovery in UK output - if the effect of sterling's fall is to produce a significant increase in import substitution. The chances of this occurring are better than the slumpers would have us believe. To take one example: the coming on-stream of Toyota's Derby plant, together with Nissan's resolution of its UK distribution problems should, along with the pound's fall, bring about a significant reduction, some would predict elimination, of Britain's trade deficit on cars. Japanese transplant production has already eliminated traditional trade deficits on consumer electronics products such as finished TVs and videos.
The trick for home-owned industry is to convince British consumers that, along with the clear improvement in price competitiveness brought on by a lower pound, there has also been a significant increase in non-price competitiveness - delivery, reliability and after-sales service.
It will not be easy. Recession elsewhere in Europe will mean that overseas manufacturers will be prepared to take a hit on margins to preserve UK market share.
But the prospect of reversing the rising tide of imports is better than it has been for many years.
One should not discount, either, the holy grail of post-war British economic policy: export-led growth, even into a depressed world economy. The clearest precedent for this dates from 1931, when Britain left the gold standard earlier than other countries and, as a result, recovered sooner. More recently, the conditions of devaluation and depressed domestic demand characterised the 1967 devaluation. In the two years after sterling was pegged down by 14%, exports grew by 35% in real terms, against growth of 7% in imports. Britain also recovered, although not due to export-led growth, through the world recession of 1982.
Growth in net exports - substitution of domestically-produced products for imports and an upturn in exports themselves - can be a powerful trigger for recovery. No one would deny that, with confidence weak, debt high and the world prospect uncertain, there are difficulties ahead. But net exports are Britain's best hope for 1993.
David Smith is economics editor of The Sunday Times.