1. There's more austerity to come. The OBR forecasts that the cyclically-adjusted current budget deficit will fall from four per cent of GDP last year to balance by 2016-17. Since its peak in 2009-10, it has only dropped by 1.5 percentage points of GDP. On this measure, then, we are only a quarter of the way through the fiscal tightening.
2. Net exports will be little help. Everyone agrees that the recession in the euro area is hurting exporters. What's not so well-known, though, is that it's not just exports to that region that have done badly. In the year to Q1, exports to the US fell by 2.4 per cent, to Japan by 3.6 per cent and to Canada by 17 per cent. It seems that exporters haven't used sterling's fall to step up their sales efforts.
There is, though, a caveat here. Supply chains are globalized: many firms that export also import a lot of parts and materials with the result that export and import growth are highly correlated. This means that, when exports fall, net exports fall by much less. The bad news is that this means that export-led growth is difficult. The good news is that it means export-led slowdowns are also not so painful.
3. Real wages are falling, which is squeezing consumer spending. Latest figures show that consumer prices rose 2.4 per cent during the last 12 months, whilst wages rose just 0.4 per cent. This squeeze has offset rising employment, and so hurt spending. Retail sales rose by just 0.5 per cent in the 12 months to April. As there's no reason to expect the squeeze on real wages to greatly abate soon, so the outlook for the high street is grim.
4. There's little sign of capital spending picking up. In fact, the volume of total fixed investment fell by 0.8 per cent in Q1 (although we don't yet have the breakdown between public and private or between spending on construction or capital goods). Since its cyclical trough in 2009Q2, investment has risen only 2.5 per cent, and it is still 19.5 per cent below its 2007 peak.
It's tempting to blame this grim outlook upon the credit crunch and deleveraging. But I'm not sure how true this is. The latest CBI survey found that only 12 per cent of manufacturers said their capital spending plans were constrained by an inability to raise external finance, whilst 54 per cent cited uncertainty about demand as a constraint. Only a handful said exports or output were credit-constrained. And the problem for many households is simply that they don't have the incomes to pay down debt, whether they want to or not.
Instead, the danger is that we've fallen into a period of prolonged slow growth, perhaps as a result of the longstanding dearth of investment opportunities; technologies such as driverless cars, graphene applications, 3D printing and robots have an astronomically high ratio of discussion to observation.
Granted, this could change sometime. It's possible that the improved sentiment we've recently seen in the stock market could lead to better sentiment and spending by boardrooms. And because capital spending decisions tend to be correlated across firms, this might eventually produce a mini-boom. But there's little sign of this yet. It looks like being a long haul.
