Il sorpasso or not
Apparently due to the falling pound the UK will have a smaller economy than Italy in 2009 (and France) so say the CEBR. This is not a well written article, I'm afraid to say, as it doesn't make clear the rather artificial nature of currency-movements in judging economic size. Because it doesn't make this clear, the last paragraph will seem rather odd to many readers:Richard Snook, one of the authors of the report, said: "The UK economy is likely to be the hardest hit by the credit crunch due to its reliance on consumer borrowing and the financial sector for growth. We see the economy taking four-and-a-half years to return to the peak in the second quarter of 2008. Only the Italian economy, which is beset by structural weaknesses, is set to do worse."
Only the Italian economy will do worse? Eh? I thought it was doing better.
Using market exchange rates, with all their limitations, suggests the CEBR figures are in the right ballpark. I dont have them but using the latest World Economic Outlook as a guide (whose 2008 figures agree with CEBR's quoted in the article), and assuming zero inflation and negative 1% growth in each country, Italy will have a GDP of 1,586bn euro, and the UK 1,437bn sterling. To make Italy overtake the UK requires a euro/sterling rate of worse (for sterling) than 1.103. If the UK grows slightly more (or has higher inflation) it will be even worse for sterling.
Labels: economics
posted by Matthew @ 12/08/2008 03:17:00 PM
Comments: 0
