Martin Flanagan: Fear of the ‘double—D’ haunts global economy

The figure for July came in at a pretty feeble 0.2 per cent, down from a revised 0.8 per cent rise in July. City economists had expected a 0.4 per cent upturn.

This disappointing data highlights deep consumer caution, and follows on this week from rising inflation figures, nearly double the mid‑term target, worse‑than‑expected UK unemployment numbers, and clear signs that the European economic locomotive, Germany, is running out of steam.

Meanwhile, away from retail in the smokestack area of the UK economy, manufacturing has been showing the most unimpressive, halting growth since the fag‑end of the last recession in September 2009.

The services sector has also had its buffetings, while one can only say the housing market is making baby steps to a recovery, of sorts.

In short, economic clouds wherever we look, and conflating with the UK government’s austerity programme increasingly kicking in.

The latest poor retail figures showed that most areas were hit, including household goods, clothing and footwear, internet and mail order sales.

As people are worried about job security and incomes are squeezed by higher inflation, bigger utility bills, etc, there seems little hope of an early tailwind of confidence for the high street. A flurry of retail business closures and profit warnings from the sector earlier this summer underscored the problems.

Consumers are paying down debt and reducing discretionary purchases, while businesses are freezing investment. Yesterday’s figures reveal that even the pale top‑line sales growth came from inflation and January’s VAT rise, with people actually purchasing fewer goods in July than in the same month in 2010.

As the British Retail Consortium noted, even the traditionally more resilient non‑food sector is having a record number of promotions to get customers to spend.

So, given the cumulative bad economic news, are we heading for a double‑dip recession? That scenario is far from inevitable, but the possibility of a dreaded double-D does not look overcooked pessimism, either.

There is momentum behind this build‑up of economic and financial worries. European shares plunged yesterday because investors have tumbled that they may have been slow in reacting to data suggesting there are real grounds for global growth worries.

Whether things recover, or deteriorate, there is a feeling of being on some sort of cusp.

Merkel and Sarkozy have a bond, but not the right one

Angela Merkel and Nicolas Sarkozy seem to be out of touch with most European economists in their coolness to the issue of common eurozone bonds to defuse the debt crisis.

Such is the doubt now surrounding the sovereign debts of Greece, Ireland and Portugal – and even Spain and Italy – that many economists now believe a common sovereign bond underwritten by the big guns of Europe, Germany and France, is the only way out of the troubles.

Obviously, it is a very tough sell to the German and French electorates, who are already fed up with shoring up more profligate countries that lived on tick for much too long.

But the French and German leaders risk cutting off their nose to spite their face if they don’t agree joint euro bonds to draw a line under the turmoil.

The price the potential sovereign defaulters would have to pay would be greater fiscal union, with France and Germany effectively calling the shots. But they may well be ready for that sacrifice given the current parlous state of affairs.