Hamish McRae: Eurozone's in turmoil. Everywhere else in limbo


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The Independent Online

The eurozone mess has got even worse. We have had Spain's approach to the eurozone authorities for a bailout of the banks and we know that help in some form will be forthcoming because it has to be. But the early signs are that there will have to be a full-blown rescue, not just of the banks but the country's national finances.

There is an EU summit at the end of the month, by which time the eurozone authorities will presumably have figured out what they want to do. Until then, everything goes on hold. We will also by then have had some Greek elections, this coming Sunday, in fact, the outcome of which will inevitably affect the eurozone – though by now there seems to be a general acceptance that Greece leaving the euro would not precipitate a wider break-up, at least not for a while.

By contrast, things have gone quiet on the other two big global economic stories, the progress of the American recovery and the action by the Chinese authorities to boost growth. The US economy is so over-analysed that it is very hard to pick out clear signals amid the wall of background noise, but the general perception is that it is growing, at best, at 2 per cent a year. That is better than not growing at all, and it is better than what is happening here or in Europe, but it is not fast enough to make much dent into unemployment. It also has to be seen against the background of the fiscal cliff that the US falls off at the end of the year.

If Congress does not come to some sort of agreement to change things, there are a number of tax breaks that suddenly end, together with a number of cuts in spending that are automatically triggered. So this slow-growing economy will, if nothing is done, be hit by sharp fiscal tightening. Whatever your view about the longer-term need for the US to balance its budget, this is not a great time to be tightening policy suddenly. There will be elections between now and then which may unblock matters, but, in the absence of some new and startling event, the US economy seems set to trudge on towards that cliff: slow growth until something happens.

And China? Here, you have to remember that this is a controlled economy with market elements, rather than a market economy as such. So we have had the easing of monetary policy that caught the headlines last week, but much more important have been the directives to banks to pump out loans to the state-controlled enterprises. Here, the Bank of England prints oodles of money and not a lot happens. In Europe, the ECB hands out cheap money to the banks and they simply make a turn by buying their own governments' stock. But in China, if banks are told to lend money, they jump to attention and do so. It goes further. If people are told to go out and buy consumer goods, they will tend to do so, too. May car sales were up 16 per cent at 1.61 million. Result: it seems the authorities may have been able to check the slowdown in growth and pump things up a bit, but we are not yet sure.

The big point here is that three large chunks of the world economy – Europe, the US and China – are all running more slowly than they were even a couple of months ago. You can see this most clearly in energy and raw material prices, with oil now well below $100 a barrel. Does this mean that the slowdown will develop into something more serious? Not necessarily, but I think we are in some sort of limbo, that it will continue through the summer, and that there is not a lot to be done about it. Not dreadful, unless you are in Greece, Spain or maybe Italy – just discouraging. What would change things for the better would be a sharp fall in inflation, for that would put real purchasing power into people's pockets. It will happen, but not yet.

Renting is back. So has home ownership reached its natural ceiling?

Are we becoming again a nation of renters rather than homeowners? Well, not suddenly, for though home ownership has been falling from a peak of 70 per cent in 2003, it is still 67 per cent. But a combination of factors, including lack of affordability, greater job mobility, later family formation and – crucially – the need for a large deposit, have combined to nudge people back towards renting.

A new report by the Halifax notes that half of 20- to 45-year-olds think that "Britain will become a nation of renters within a generation and that the reliance on the Bank of Mum and Dad leaves a third of parents concerned for their own financial future". In addition, nearly a quarter of parents have had their children move back home as adults.

But there is a puzzle: to what extent is this shift one of choice or one forced on people? After all, the fall in home ownership started during the boom, not the slump. Maybe there is a natural ceiling to home ownership and we have reached it. Meanwhile, the dearth of mortgages for first-time buyers must be a concern and rightly so.