The great contraction

Signs of a great contraction of the global conomy are appearing throughout the world, pushing aside any lingering notions of the return to growth that capitalism requires.

Following six months of stagnation, the Bank of England said today that the near-term outlook for growth had worsened since February, while prices would rise, and that first-quarter growth had been slower than it had predicted. Governor Mervyn King also blamed the extra public holiday for the royal wedding, and disruption to supply chains from the Japanese earthquake, for the slowdown.

Since the recession started, the financial sector has shrunk by 9% - twice the 4.7% decline in the economy as a whole to the end of 2010. As big banks continue to offload loans and reduce balance sheets, the process is likely to constrain the economy’s growth rate for years to come.

In the United States, the independent Consumer Metrics Institute (CMI) presents a stark truth emerging through the clouds of delusional confidence. Last week it report that “after a week-long pause our Daily Growth Index resumed its movement into record territory, setting a new all-time low representing a 6.39% year-over-year contraction on May 3, 2011”.

Revised official figures from the US Census Bureau more than confirm the CMI’s more accurate grip on the reality of deepening decline. It reported that 2010 "furniture and home furnishings stores" sales were 3.6% weaker than previously reported, turning an 0.8% gain into a -2.4% contraction while "miscellaneous store retailers" dropped some 6.7%, nearly wiping out the earlier 7.6% alleged gain.

Japan, the world’s third largest national economy, is struggling to recover from the effects of the earthquake and tsunami which overwhelmed the inadequate and badly maintained defences of Tokyo Electric Power’s Fukushima reactors, forcing the closure of swathes of production across the world. Latest estimates from Goldman Sachs economists indicate a contraction of 0.2% in 2011 revised down from an 0.7% gain.

In the eurozone, Greece’s economy contracted by 4.5% in 2010 and is expected to shrink by another 3% this year. German consumers have been hit hard with a 2.1% monthly contraction in spending. The overall drop is 1.7% for the year, and it is now at the lowest level since November 2009. The German thrift is even more remarkable given that unemployment is lower there than anywhere else in Europe. In Spain the March 1.4% fall in retail sales extended the string of losses to twelve consecutive months. In bankrupt Ireland, house prices are down by at least 33% from their peak - the largest contraction in Western Europe since the global economic crisis began.

In Serbia, the International Monetary Fund, which provided a loan of €3 billion in 2008 are busy strong-arming the country’s government into revising its shrinking GDP figure for 2009 sharply downward from a contraction of 3.1% to over 6%As a result, Serbia’s debt – and the payments to be made by its increasingly unwilling population – will be sharply higher than previously thought. Tens of thousands have attended anti-government rallies.

Meanwhile, bonuses for chief executives at 50 major US companies bounced back by an average of 30.5% in 2010, the Wall Street Journal has reported. This was the biggest gain in at least three years. Goldman Sachs chief executive Lloyd Blankfein's total compensation, including a cash bonus, had been raised to $19 million in 2010. His pay package includes a salary of $600,000, a cash bonus of $5.4 million and stock awards of $7.65 million for 2010.

But while investment banks like Goldman Sachs prosper – having moved into commodity futures in a big way – the productive economy is going to hell in a handcart. The banks left over from the crash may be too big too fail – but the global economy itself isn’t.

Gerry Gold

Economics editor

A message from the Palace

One does not normally speak to my people at this time of the year but in the light of the splendid marriage between my grandson Prince William and Miss Kate Middleton, it is appropriate to convey a few words to what I am sure is a truly grateful nation.

I know, at this time of great austerity and hardship suffered by millions of my subjects as a result of the policies of my Ministers and captains of industry and finance, this pageant of royal history is particularly welcome.

To those who have unfortunately lost their homes to the banks, or whose job has disappeared so that others may continue to live well, those who despite their disability have had to reapply for their more than generous benefit, and young people without employment, to all of you we say: let your mind wander from your misery for a day at least. Enjoy other people’s happiness if you can’t manage your own.

For we are all in this together, as my Prime Minister and the Chancellor have conveyed on more than one occasion. The pain of my subjects’ suffering is heartfelt here at the Palace and at all my other royal residences. We all have to tighten our belts so that our nation may become great once again.

The House of Windsor is playing its part in the recovery of our country’s fortunes. Our allowance from Parliament is being abolished and we will have to live off the proceeds from the Crown Estate. As you know, running the Monarchy PLC is a somewhat expensive business.

Although my staff let it be known that the annual expenditure of the royal household is around £38 million a year, with security and other measures the true cost is closer to £180 million. So future access to the £200 million a year profits from the Crown Estate, which though nominally owned by the people through Parliament, are actually all mine as they were forcibly surrendered by one of our greatest monarchs, George III, is most welcome.

It is pleasing that the Estate is one of the world's biggest landowners and its tenants, mostly living in our great capital, pay millions of pounds in rent each year. Their rent cheques will now go directly to pay for your head of state and those who follow me on to the throne. I want to thank my Ministers for this most generous gift. I also want to thank them for any detention of unruly and ungrateful subjects prior to the great wedding who think treasonous thoughts and plot dastardly acts this Friday. One hopes that the Tower has enough room for them all.

I am most saddened that Prince Salman bin Hamad al-Khalifa of Bahrain is unable to attend the ceremony at Westminster Abbey as he has urgent matters to attend to at home in relation to unaccountably restless subjects. But Prince Mohamed Bin Nawaf of Saudi Arabia is most welcome. The help his Kingdom has given to the Kingdom of Bahrain in maintaining order is gratifying.

One cannot stress enough how important it is hang on to one’s crown in these turbulent times. One wonders where Britain would be if the House of Windsor did not continue to occupy the throne and pass it from one family member to another. Some say that hereditary privilege of this kind is a bad thing. Even my Deputy Prime Minister suggested something of the kind but I am pleased to see that my Prime Minister has put him in his place.

Let us go forward as one nation, making sacrifices where necessary. Let the bells ring out and people rejoice on this great occasion. For what is the alternative? Protest, assemblies, revolution, equality? God forbid.

Her Majesty Queen Elizabeth II of the United Kingdom of Great Britain and Northern Ireland.