Hamish McRae: Don't get too comfortable, Britain. Our own fiscal correction has barely begun

Economic Life: There is some sort of slowdown happening. This is not yet a double dip, but it is certainly a pause that is coming early in the recovery phase of the cycle

Yes, but what about the real economy? There is always a temptation to over-dramatise financial and the political events and under-emphasise what is actually happening in the serious business of wealth creation. And so it is right now.

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The events in Brussels and Washington yesterday are indeed dramatic but the substance is mundane: what is the mechanism whereby some taxpayers are persuaded to part with more of their money and others to receive fewer services from governments, in order that the mathematics of public finance balance?

You cannot magic real resources from thin air and European and American citizens are going to get a worse deal from the state. The issue is how to share the burden between countries, between people within those countries and between the present generation of earners and future generations. The rest is just detail.

However – and this is hugely important – the scale of the burden is crucially dependent on the medium and long-term rate of growth of the respective economies. With decent growth the burdens become tolerable; with stagnation or worse they become very difficult indeed. And that is why, were it not for all this political stuff, everyone would be focusing on what seems to be happening to the world economy.

There does, I am afraid, seem to be some sort of slowdown happening. It is happening in Britain, Europe, the US – and it is happening, too, in China. This is not, or at least not yet, a double dip but it is certainly a pause and one coming early in the recovery phase of the cycle. This is not unprecedented, for you often do get pauses such as this. But after such a deep downturn you would expect a stronger bounce than we have had. Accordingly, this is an undoubted concern.

How bad is it? Well, let's start with Europe, for it does seem that the financial mayhem is starting to affect the real economy. The best forward indicators are generally accepted to be the various purchasing managers' indices, where companies report what they expect to happen to sales, employment, prices and so on in the months ahead.

The latest eurozone "flash" PMI, which gives the first feeling for the mood of business, was out yesterday and it unexpectedly dipped. Royal Bank of Canada's capital markets division has constructed from this the signal it gives for economic growth and, as you can see from the top graph, it looks as though the eurozone economy may barely grow in the next few months: the dip in the red line may be giving an early warning of a dip in the blue one. We don't know to what extent this dip is associated with the debt worries or whether it indicates some wider malaise. It is probably a bit of both. Still, at the margin the mess not just over Greece but also over the region more generally cannot have increased confidence.

A common sense response would be that the weaker economies are indeed suffering from worries about the squeeze on their economies imposed by the need to get debts under control, while the stronger ones, notably Germany, are suffering from flatter demand for their exports from the rest of the world. (Small side point: I had not realised until recently that within a year or so China is likely to oust France as Germany's largest export market.)

Anyway, the eurozone is clearly facing a slowdown. So, too, is the US. Here there is, of course, the long drawn-out debate in Congress about the Federal debt ceiling, with the government supposedly running out of money on 2 August. But I don't think that is really the cause of the slowdown, though were there to be no deal it would exacerbate it – actually it looks as though something will be scrambled together, though perhaps not in time to meet the deadline. No, the immediate problem is that the economy still seems incapable of creating enough jobs. The figures yesterday showed another rise in the number of people claiming unemployment benefit and net employment growth has slowed to a trickle.

Looking ahead, job losses in the public sector, especially at a state level, will continue and the private sector will have to mop up that surplus labour. The trouble is that its ability to do so turns crucially on private-sector demand and American consumers are still ground down by debts. What turns it? My instinct is that the indicator to look at will be the housing market. Once confidence returns to the market, and housing starts have been up in the past few months, then confidence will slowly return more generally. But this will take another year or so and that does inevitably have electoral implications.

We'll see. The basic point is that there is a pause in the US recovery and that is that. What about the third leg of the global economic tripod, China? The latest purchasing managers' index for China has suddenly started showing a negative, as you can see from the next graph – there are more companies expecting a contraction in output than an expansion. It is not a huge negative and there are some reasons why this early flash index may make things look worse than they are. For example, it reflects the opinion of manufacturers rather than of the business community more generally. Still, it sent a little shiver through those bits of the financial marketplace that were not obsessed by events in Europe and the US. You want slower growth in China because that would reduce pressure on commodity prices and inflation. But you don't want the country to make a hard landing from its recent growth spurt.

All this creates uncertainly for us. That is absolutely something we do not need as we have generated plenty of uncertainty on our own. A couple of bits of iffy data came out yesterday: retail sales that were up a tiny bit and government borrowing that shows that we are barely any closer to closing the deficit than we were a year ago. On retail sales the thing that is really interesting is how rising food and fuel prices have hammered our standard of living, as the bottom right-hand graph shows. Commenting on this, Capital Economics reckons that an early start to the summer discounting season is an important reason behind the slight bounce in sales.

As for the borrowing numbers, I am afraid that the first three months of this year are nearly as bad as the same period last year: a deficit of £39.2bn against £39.5bn then. Fortunately, tax revenues are not too bad and it may be that spending can be reined in a little as the year progresses, but getting the deficit down from last year's £142bn to the target of £122bn will be a struggle. Most Britons don't realise that our Government is still borrowing more as a proportion of GDP than any major European country and that borrowing is still almost as high as it was in the final weeks of the last Labour government and before this one had is emergency Budget. There should be no crowing about what is happening across the Channel; none at all. And this not just because a fall-off in export demand damages our companies, but because our own fiscal correction has hardly begun.