Britain on the cusp of recession

Property developments are pictured in the City of London. Britain’s economy unexpectedly shrank in the second quarter of this year on Brexit turmoil, official data showed, placing the country on the verge of recession. (AFP)
Updated 11 August 2019

Britain on the cusp of recession

  • Dramatic slump in construction and manufacturing sectors blamed for fall in UK gross domestic product

LONDON: Britain’s economy unexpectedly shrank in the second quarter of the year on Brexit turmoil, official data showed, placing the country on the verge of recession and sending the pound tumbling to a 2.5-year low.
Gross domestic product (GDP) fell 0.2 percent in the April-June period, the first time the economy has contracted in almost seven years, the Office for National Statistics (ONS) said in a statement, blaming a dramatic slump in the construction and manufacturing sectors.
The data, which was worse than market expectations for zero growth and also reflects global economic strains, sent the pound diving to $1.2056 — the lowest level since early 2017.
Another contraction in the current third quarter would put Britain in an official recession, ahead of the nation’s expected withdrawal from the EU at the end of October.
“The latest data reveal an economy in decline and skirting with recession as headwinds from slower global economic growth are exacerbated by Brexit-related paralysis,” said IHS Markit economist Chris Williamson.
The result contrasted with 0.5-percent expansion in the first quarter, when activity was boosted by companies stockpiling ahead of Brexit.
Output was buoyed in the first three months of 2019 because Britain had initially been scheduled to leave the EU at the end of March.
“GDP contracted in the second quarter for the first time since 2012 after robust growth in the first quarter,” said Rob Kent Smith, ONS head of GDP.
“Manufacturing output fell back after a strong start to the year, with production brought forward ahead of the UK’s original departure date from the EU.
“The construction sector also weakened after a buoyant beginning to the year, while the often-dominant service sector delivered virtually no growth at all,” he added.
British Prime Minister Boris Johnson replaced Theresa May after winning the Conservatives’ leadership contest on a pledge to take Britain out of the bloc on Oct. 31 with or without a divorce deal.

The latest data reveal an economy in decline and skirting with recession as headwinds from slower global economic growth are exacerbated by Brexit-related paralysis

Chris Williamson, IHS Markit economist

Brexiteer Johnson, a pivotal “Leave” campaigner in the 2016 EU exit referendum, has repeatedly insisted that Britain can make an economic success of Brexit.
Chancellor of the Exchequer Sajid Javid on Friday said that the global economy was slowing, but highlighted other recent positive data for the UK.
“This is a challenging period across the global economy, with growth slowing in many countries,” said Javid.
“But the fundamentals of the British economy are strong — wages are growing, employment is at a record high and we’re forecast to grow faster than Germany, Italy and Japan this year,” he added.
“The government is determined to provide certainty to people and businesses on Brexit — that’s why we are clear that the UK is leaving the EU on Oct. 31.”
The government’s official forecaster last month warned that Britain would slide into a year-long recession should it leave the EU without a deal.
Bank of England Gov. Mark Carney recently warned that a no-deal Brexit could undermine entire sectors of the economy such as the car industry and farming.
“The latest look at the UK economy makes for pretty grim viewing,” XTB analyst David Cheetham said in reference to Friday’s data.
“Given the growing threat of a no-deal Brexit that looms menacingly overhead, it would not be at all surprising if the current quarter also shows a contraction — therefore meeting the standard definition of a recession.”
May stepped down after failing to get her EU-divorce deal through parliament and being forced to delay Brexit twice.


China Pakistan Economic Corridor is a game-changer

Updated 25 min 52 sec ago

China Pakistan Economic Corridor is a game-changer

  • Project will strengthen bond between two countries who share history of good strategic relations

China Pakistan Economic Corridor is a game-changer

Project will strengthen bond between two countries who share history of good strategic relations

Syed Hamzah Saleem Gilani

The China Pakistan Economic Corridor (CPEC), presently under construction at a cost of $46 billion, aims to improve Pakistani infrastructure and deepen the economic and political ties between China and Pakistan.

CPEC is advantageous to Pakistan but also carries substantial economic and strategic benefits for China.


Its importance for China is evident from the fact that it is part of China’s 13th five-year development plan.

CPEC will boost ties between China and Pakistan, which share a history of congenial strategic relations, over a versatile canvass of mutual interest extending over six decades.

In the past 65 years, both countries have developed strong bilateral trade and economic collaboration.

China is Pakistan’s largest trading partner in imports and exports. And CPEC is going further to enhance the lucrative economic cooperation between the two countries.

If realized, the plan will be China’s biggest splurge on economic development in another country to date.

It aims over 15 years to create an economic corridor between Gwadar Port to China’s northwestern region of Xinjiang through the 2,700 km long highway from Kashgar to Gwadar, railway links for freight trains, oil and gas pipelines and an optical fiber link.

The project will create nearly 700,000 new jobs and add up to 2.5 percent to Pakistan’s annual growth rate.

CPEC has undeniable economic and strategic importance for Pakistan and China. It has been called a game-changer for Pakistan because it will link China with markets in Central Asia and South Asia. Presently China is some 13,000 km from the Arabian Gulf with a shipping time of about 45 days.

CPEC will shrink this distance to merely 2,500 km (an 80 percent reduction).

The shipping time will reduce to 10 days (a 78 percent reduction). The bulk of China’s trade is through the narrow sea channel of the Strait of Malacca.

Top security analysts say that in the event of a future war in Asia, the US Navy could block the Strait of Malacca, which would suffocate China’s trade route. CPEC, besides providing an alternate route, will reduce the shipping time from China to Europe.

The largest part of the project would provide electricity to energy-thirsty Pakistan, badly affected by hours of daily scheduled power cuts because of electricity-shortages, based mostly on building new coal-fired power plants.

The plans envisages adding 10,400 megawatts of electricity at a cost of $15.5 billion by 2018. And after 2018 a further 6,600 megawatts, at an additional cost of $18.3 billion, will be added, doubling Pakistan’s current electricity output.

The CPEC brings many benefits for China and Pakistan, but it is also challenged by security-related and political threats.

There are two major sources of threat: Indian involvement, and the separatist rebellion in Baluchistan where the port of Gwadar is situated.

Both dimensions of threat are interconnected because recent arrests of Indian spies by Pakistan reveal that the Indian government is spending a huge amount of money and resources on sabotaging the CPEC project.

Apart from espionage activities, India is also supporting the Baloch rebels. Nevertheless, Pakistan is well-equipped, with adequate security and infrastructure support to effectively deal with such challenges. Operation “Zarb-e-Azb,” which has received international recognition, has flushed out the major chunk of extremists from Pakistan’s soil.

The political side of the project for Pakistan is also not rosy.

It is always difficult to achieve political consensus on an issue. The Kalabagh dam project, for example, which is considered to be extremely important in addressing Pakistan’s water-shortage problems, has been subjected to political controversy and still awaits construction.

Similar formulas are being applied to CPEC. Drums of provincialism are being beaten loudly to make CPEC another Kalabagh dam.

However, this time sanity has prevailed in the political leadership and controversies were nipped in the bud at an early stage. Besides the efforts of political leaders, the contribution of the Army chief should not go unappreciated.

He took a special interest in this project and provided — and ensured for the future — the Pakistan Army’s full support for the mega-economic project.

CPEC has the potential to carry huge economic benefits for the people of Pakistan and the region. According to a recent estimate, CPEC will serve three billion people, nearly half of the global population. Thus a huge economic bloc is about to emerge from this region.

On completion of the CPEC, Pakistan will become a connecting bridge to three engines of growth: China, Central Asia, and South Asia.

It will create many jobs and elevate Pakistan to high growth rates, which will ensure Pakistan’s stability and serve as a deterrent to extremism and violence.

The completion of CPEC is not going to be an easy task because it has attracted international conspiracies, against which it must be protected.

The economic dividends of this project, by connecting all the economies of the region, are going to be so high that once this project is in full-operation even our neighbor India might ultimately join the club for greater economic benefits.

* The author is Pakistan’s press counselor in Jeddah

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