There Will Be No V-shaped Recovery

"Hard to find a single economist who believes that the economy would grow by 1.25% in 2010, let alone grow by 3%-plus for the three years after that. Yet, without that turbocharged performance, there is not the remotest possibility of the budget deficit being halved by 2013-14" (Larry Elliott, Grauniad)

In HSBC’s February annual report, the Chairman stated that this is ‘the first just-in-time recession’, meaning that just-in-time industrial structures (and thought-processes) allow firms to cut production overnight. And in the autumn that’s exactly what they did, as we discussed in November. But could it bounce back just as quickly ? Yvette Cooper was wittering on Newsnight that the fabled V-shaped recovery was exactly what we can expect.

But I reckon she’s wrong: and (not being an economist) here’s my illustration from everyday life. Today I took the motor in for its annual service. Doors open at 07:30 and for each of the previous 20-odd years I’ve been doing this, there’s a queue already formed by 07:15, by all those commuters who want to drop the car off before work.

Today, there was no-one else there at all. Would you like a coffee, sir, and no trouble over having a replacement car.

Which (since they haven’t all lost their jobs) means that people are deferring routine car maintenance. Which means, over time, their cars won’t be as reliable as in the past. And factories are the same.

When the just-in-time ‘on’ switch is thrown, the carefully-crafted just-in-time logistics chain won’t work as we’d become accustomed to, resulting in delays, inefficiencies and the need for more working capital.

Add that to Ruth Lea’s concise list of reasons why she doesn’t believe in Darling’s V either. It just ain't gonna happen.

ND