Three economists predict 'Is the arrival of the Great Recession inevitable?'
Concerns about inflation led the US Federal Reserve to raise rates in June 2022, the largest since 1994. The non-profit media, The Conversation, has raised concerns about the growing recession and recession due to significant monetary tightening as central banks follow the Fed. When I interviewed scholars, issues common to Japan, such as the aging population and sluggish wage growth, emerged.
Is a major recession unavoidable? Three economists give their views
◆ Jonathan Perraton, Senior Lecturer, Faculty of Economics, University of Sheffield
'British economy It reflects concerns that growth will be weaker than previously expected. '
According to Pellaton, the UK is expected to experience the highest inflation rates of any major country, and 'the unemployment rate is lower than it was before the pandemic of the new coronavirus infection, but the employment rate is also lower. From this point, it has been pointed out that the non-working population, especially the elderly, is increasing remarkably, and the labor shortage has become an issue for the British economy.
It is natural that wages will rise if there is a labor shortage, but real wages from February to April 2022 decreased by 2.2% from the previous year, the largest decrease in the past 20 years. In this regard, Mr. Pellaton said, 'At least, in response to a wage increase request from a worker, the cost is passed on to the consumer in the form of rising prices, and the worker demands a wage increase again in response. It doesn't seem to be a ' wage / price increase spiral '. '
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The fact that prices are rising but wages are falling means that 'at least part of the consumer demand that has supported the UK economy has been covered by the chopping of savings in households.' thing. One of the reasons behind this is that the pandemic regulations have been relaxed and spending has increased, but the reduction of savings will eventually reach its limit, which may lead to a decline in consumer confidence.
In this regard, Pellaton said, 'Bank of England faces unprecedented challenges. In the slow-growing UK economy, raising interest rates is not effective in dealing with supply-side problems. As long as rising prices outpace wage growth and the economy stagnates, support for the people will be in the hands of the government, not the Bank of England. ' I showed the view that there is.
◆ Mr. Bridget Granville, Professor of International Economics and Economic Policy, Queen Mary University of London
'The focus of the debate about what will happen this time is at or below the level of Britain in the 1970s ,' Granville said, recognizing that stagflation, where economic stagnation and rising prices are occurring at the same time, is imminent. It's going to be even worse. I think the possibility of a recession is high, but the experience of the 1970s, where the recession and high inflation continue, should be avoided. Even relatively mild stagflation will inevitably be painful. '
According to Granville, there are two main causes of inflation. The first is that China's Zero-COVID policy has prolonged supply chain turmoil, and the second is that energy supply is restricted by Russia's war in Ukraine and the policies of Western countries against it.
Also, looking at the labor market, labor shortages are still a problem. This is partly due to the fact that while labor demand, which had been sluggish due to the pandemic, has normalized, workers over the age of 50 have chosen not to return to work. It is also related to the fact that Britain has left the EU due to Brexit , which has hindered the influx of high-quality labor from Central and Eastern Europe.
Unlike Mr. Pellaton, who says that 'it is not a typical wage / price increase spiral,' Mr. Granville is based on government statistics that wages are increasing by 4% annually. There is a rising price spiral, and the Bank of England is raising interest rates to curb it. '
However, some economic indexes suggest that the wage / price increase spiral is not so serious. In addition, Mr. Granville pointed out that the British economy tends to 'reduce employment and production without raising prices for fear of sluggish consumption and without responding to wage increases.' 'The pandemic problem will eventually be resolved, and long-term and structural problems with lower wages will influence future inflation trends,' he said.
'The UK economy is likely to be stagnant, or a mild recession, so we expect inflation to fall towards the Bank of England's target of 2%,' Granville said. The Bank of England is too particular about this 2% target. In my book Remembering Inflation , I argue that up to 5% will cause little damage to long-term growth, so the Bank of England We should stop raising rates when inflation falls a little lower than it is now to avoid the disadvantages outweighing the benefits. ' Shown.
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◆ Chris Martin, Professor of Economics, University of Bath
'The UK labor market has proved its resilience from the pandemic. The government's employment retention scheme has been successful and from the worst,' Martin said, noting that labor market trends are key to the UK economy. Despite the large shrinkage of the economy because of the protection of the labor market, the decline in employment was one-third that of the 1970s. '
On the other hand, the number of workers has decreased by nearly 250,000 compared to before the pandemic, real wages have been sluggish, and the macroeconomic destination is bleak, so we do not know the future. There are many.
There are two main factors that make prediction difficult. First, the unemployment rate is becoming less useful as an indicator of the labor market. In the UK, workers are broadly classified as 'employed, unemployed, and inactive', but unlike the unemployed who are actively looking for a job, inactive people such as the elderly aim to work. Is not ... And 80% of the 250,000 workers who have decreased since 2019 are inactive, and only 20% are unemployed.
While many inactive people have chosen not to return to the labor market, Martin said that the majority of new hires are inactive rather than unemployed. 'Economists' understanding of non-activists is much weaker than that of the unemployed,' he admitted, lacking clues to analyze the labor market.
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The second problem is that Brexit changed the quality of immigrants, not the number. In the UK, the number of workers from Nigeria and India is increasing, but they have advanced skills and tend to work in the fields of medical care and social welfare rather than hospitality. Therefore, unlike fields such as medical care, the hospitality industry will struggle to secure human resources. Martin pointed out that the future of the labor market is uncertain because it is unclear whether these changes in labor conditions are permanent.
In addition, significant disparities are emerging not only between industries but also between the private and public sectors. According to Martin, private sector employment is returning to pre-pandemic levels and wage growth is strong, while the public sector is far behind.
Pointing out these points, Martin said, 'Chronic slumps in investment and lower consumer spending suggest slowing or lowering GDP, so companies may be less demanding of workers. Currently, companies have many vacancies, and relatively large wage increases in the private sector have offset long-term negative factors, which have left workers after the pandemic. It is possible that some of the workers will return to the labor market, and as a result, the number of workers is expected to decline by up to 100,000 in the coming months, but this is not a large percentage, so other in the economy. It won't make the problem much worse. '
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