Even the state-run media called it “Black Monday”. The Shanghai Composite, China’s main share index, plunged an eye-popping 8.5pc in a single day at the start of last week. Tuesday saw another 7.6pc drop.
These dramatic falls, which followed a more gradual but still stomach-churning 11.5pc decline in Chinese stocks the week before, ripped through global markets. America’s Dow Jones Industrial Average share index plummeted an unprecedented 1,000 points, before closing 588 down – its biggest decline for four years. The FTSE-100 endured a 4.7pc nosedive, its worst one-day loss since 2009. Germany’s Dax index, also, went into “bear market” territory, falling to more than 20pc below its peak. Commodity prices similarly plunged, with oil hurtling down towards $40 a barrel, testing six-year lows.
Economists aren’t very popular. Dismal scientists, after all, are the kind of experts who don’t know what they’re talking about but make you feel as if that’s your fault. Such bamboozling is often deliberate, especially when it comes to forecasting. Projections and prejudices take on the air of unchallengeable truths when expressed in faux-scientific language and garnished with mathematical hocus-pocus.
As an economist myself, I’d say that one of the few positives from this ghastly sub-prime crisis is that the profession is becoming more humble. Since the credit crunch, the use by economists of ever more complex models, and the increasingly inane assumptions that go with them, has partly reversed. Good.
I was at a festival last week that combined up-to-the-minute economic analysis with raucous no-holds-barred comedy. It sounds like a strange mix – but it worked. Maybe that’s because this unique hybrid event took place in Ireland where, even in the teeth of adversity, folk see the funny side of life.
Kilkenomics is staged annually in the elegant bijou city of Kilkenny, in the south east of the Emerald Isle. Dubbed “Davos with laughs”, it attracts a high-powered crowd of economists hailing from central banks, financial institutions and some of the world’s top universities – together with the odd renegade dismal scientist such as me.
“When the music stops,” Chuck Prince famously observed back in mid-2007, “things will get complicated”. The then Chief Executive of the US banking giant Citigroup was admitting that growing concerns about sub-prime loans could ultimately shatter what we now know was “irrational exuberance” on global financial markets.
“As long as the music is playing, though, you’ve got to get up and dance,” Prince continued. “And we’re still dancing”. There’s a “we’re still dancing” mood on global markets today, just as there was six years ago, in the run-up to what turned out to be the disastrous market melt-down of September 2008.
So the UK has dodged the dreaded “triple-dip”. While British GDP fell 0.3pc during the final quarter of 2012, last week came news that our national income increased 0.3pc during the first three months of this year. That meant we avoided two successive quarters of contraction – the standard definition of “recession” and a state this country has already endured twice since the credit crunch was sparked in 2008.
A “triple-dip”, the UK’s first in modern times, would have driven some very nasty headlines for George Osborne. For now, the Chancellor is no doubt allowing himself a sigh of relief. He will be more than aware, though, that for all his “healing” rhetoric, the UK economy remains extremely fragile.
Two pieces of economic news emerged last week that I can’t avoid mentioning in this weekend’s column. The first is that China’s economy grew by 7.6pc during the second quarter, its weakest rate since 2009. This GDP growth slow-down, albeit to what remains an enviably buoyant pace, has caused some angst on global markets. China, after all, is the second-largest economy on earth.
With the US still sluggish, the emerging markets, China the powerhouse among them, have replaced America as the world’s economic locomotive. The “non-West” now accounts for half of all commerce and a massive four-fifths of global growth. If China tanks, we’re in for another world-wide slump.
For some time, International Monetary Fund supremo Christine Lagarde has argued that a stronger “global firewall” is needed, to contain “any future financial crises”. Well, at this weekend’s IMF-World Bank meetings in Washington, she announced there are now “firm commitments” from member states to boost the IMF’s lending power.
The extra resources, Lagarde’s officials dutifully claimed, will be “available for the whole IMF membership, not earmarked for any particular region”. Everyone knows this is nonsense. This higher IMF firewall has been created, the money being reluctantly made available by member states, because governments around the world are petrified the eurozone could implode, sparking another “Lehman moment”.