Wednesday, April 22, 2009

UK once again the poor man of Europe?

Britain's budget deficit will soar to a record 175 billion pounds as the economy shrinks at its fastest pace since World War Two this year, British finance minister Alistair Darling said on Wednesday.

To help bridge the yawning gap, Darling will slap a new 50 percent tax rate on the highest earners but the government will still have to issue a record 220 billion pounds of government bonds, way above even the highest forecasts.

Nowhere is this cycle more evident than in Spain. Last month, it became the first of the 16 nations that use the euro to record a negative inflation rate. The drop, though just 0.1 percent, had not happened since the government began tracking inflation in 1961, and Spanish officials have said prices could keep dropping through the summer.

Some of the decline came as volatile food prices sank; the cost of fish fell 6.2 percent, and sugar was down 5.7 percent. But even prices in normally stable sectors like drugs and medical treatments fell 0.7 percent in March, and there were slight declines in footwear, clothing and prices for household electronics.


While unemployment traditionally is higher in Spain than in much of Europe, the sharp increase has many here nervous. The jobless rate for those under 25 is at a Depression-like level of 31.8 percent, the highest among the 27 nations of the European Union.

I can remember someone telling me about 10 years ago that real estate would be cheap in Europe in 15 years (5 years from now).  I think he relied on demographics for that prediction.

Addendum: IMF predictions.

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