Economic recovery means things are moving back to normal – but a very different normal

Governments must use this recovery to fix the design faults of the eurozone before the next recession hits


A holiday weekend and a pause for thought – because something big has happened in the past few weeks to the developed world's economy. Recovery at last is secure, which is a relief, but it is an odd recovery, and one that carries dangers and concerns.

A secure recovery? If you doubt that, consider this: just in the past few days Portugal and Greece, the two weakest eurozone economies, have been able to borrow again on the financial markets. Ireland reached that point a few months ago. The euro has, for the time being, been saved. The costs in terms of loss of wealth and human misery have been dreadful but the fact that these countries can borrow again draws a line in the sand. Growth is back.

In the United States the recovery started earlier and has, at least according to the official numbers, been stronger than in Europe or the UK. But job growth has been weak and the economy has been on artificial support in the form of monthly purchases of government debt by the Federal Reserve. There were concerns about what might happen when that monthly drip-feed ceased. Now the mood has shifted. Unemployment is down to 6.3 per cent. Everyone knows that the Fed purchases will cease this autumn, and a rise in interest rates is expected next year. Yet the Dow Jones index went to a record high. Markets may be wrong but they are giving a strong signal of confidence.

Look at the UK: unemployment is below 7 per cent, inflation below 2 per cent, and growth above 3 per cent – all in the past few weeks. It is quite hard to remember that a few months ago some commentators were banging on about the dangers of a triple dip. There are concerns, but they are not about the recovery as such.

So what about this next stage? There are, I suggest, two main themes. The first is that while the recovery may be secure at a macroeconomic level it isn't at an individual one. The second is that countries need to use this period of growth to fix things before the next recession comes along.

Personal insecurity is evident everywhere. In Europe it appears superficially to be a north/south thing and it is certainly that. Italy and Spain have started to grow, but unemployment levels are dreadful and would be worse had not hundreds of thousands of young people emigrated to find jobs. Pensioners have had their pensions cut. A quarter of the Britons who moved to Spain have returned home. Even in successful Germany there is labour insecurity: short-term contracts and "mini-jobs". Consumers remain cautious, with car sales only starting to climb in the past few months. Even in Scandinavia, a region that has come through the downturn in relatively decent shape, there are worries.

In the US, you might say that people are more accustomed to insecurity. Well, it has got worse. Take the labour market. Unemployment has fallen fast, but one reason for this has been an increase in discouraged workers: people no longer seeking jobs. The proportion of the population that is employed is at a 36-year low. And most of the job growth has been in self-employment, as it has here.

In the UK, there are several aspects to rising insecurity. There is this increase in self-employment, which underlines the shift in work patterns. There is the spread of "zero-hours" contracts, which some people prefer but many don't. There is the continuing squeeze on published pay levels and the shedding of jobs by the public sector and the banking industry.

Anyone arguing that things are at last moving back to normal has to acknowledge that the new normal is very different. This period of economic growth will not be like past periods, and whether you focus on the flexibility or the insecurity, coping with these different sides of the coin will be a personal preoccupation for all.

Politics will have to adapt to that and you can already see Labour responding here in Britain to zero-hours contracts. But politics will also have to adapt to something else, which is the need to create more robust finances and monetary conditions ahead of the next recession.

It may seem a bit premature to worry about the next global downturn when we have barely recovered from the last one, but there is a huge amount of fixing to be done. In Europe the euro may be secure for a bit, but the design faults of the eurozone remain as grave as ever. The European political elite now accepts these errors but has barely begun to correct them. In the US, the middle class has seen no increase in living standards for a generation and the policies to rescue the economy have benefited the "haves", rather than the "have nots". And in Britain we have set in motion another housing boom, with all the economic and social distortions associated with that.

A lot to be done.

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