2012: a year in charts

Presenting 20 of the best and most interesting charts I came across in 2012.

International stuff

1. Super Mario saves the euro (for a bit)

The story of Europe’s plight is best told by looking at the state of each euro member’s government debt. The chart above, from a recent Bank of England Financial Stability Report, shows the implied default probability facing each of these eurozone members. As you can see, the probability of a default in Portugal, Italy, Spain et al has fallen sharply since the European Central Bank, under Mario Draghi, committed to buying up troubled states’ debt if necessary. And that despite the fact that the ECB actually has yet to spend even a single cent on government debt under this new policy.

2. Mario’s misleading fact

However, Super Mario also trotted out the most misleading euro statistic in history – the one about how the euro must be in good shape because its total current account was in surplus. In other words, it does not borrow or lend excessively to other countries around the world. Now, that would be good news if you believed the euro area was a single, stable state. Britain and the US, by contrast, have large current account deficits that are in many senses the root of our current debt crisis.

The problem is that when you look at the level of individual countries, the euro has a whole range of current account imbalances across the board. Click on the picture above to see an animated gif showing you just that (you need to wait a few seconds for it to animate). That‘s why it is in so much trouble: some countries are saving and exporting too much (Germany et al), others are borrowing too much (Greece et al). It’s those imbalances – and the remaining question marks about how they’re evened out – that’s central to the euro crisis. Draghi’s fact does at least show that it can solve its own problems without recourse to outside help. But it hardly proves there wasn’t a crisis in the first place.

3. Why the euro is still in trouble (and why Britain is not Greece)

The chart above shows the international investment position of the respective countries – in other words the total amount its residents, be they companies, government or individuals, owe to overseas investors. As you can see, despite its large annual current account deficits, Britain doesn’t have a terrifyingly large IIP. Neither, for that matter, does Italy. Greece, Spain and Ireland are another matter. It’s this large stock of debt to overseas investors that is one of the key vulnerabilities for any economy. And many European states still harbour large IIPs.

4. But unit labour costs are converging

Or at least they’re on the way, according to these OECD projections. Important, given that unit labour costs are central to the euro crisis.

Domestic stuff

5. Britain bursts out of recession

Britain re-emerges from the double-dip recession in style, with growth of 0.9% in the third quarter of 2012 (revised down from an initial estimate of 1%). That was the strongest single quarter of growth from almost any other major economy, according to this OECD chart.

The problem is that much of this growth is due less to broad-based economic health than to a bounce-back after a very weak Q2, which had an extra bank holiday due to the Queen’s Diamond Jubilee – and to temporary facts such as the 2012 Olympics in London. Moreover, there are fears that the UK may have slid back into contraction in the final quarter of the year.

6. The deepest and longest UK recession

The best way of judging the severity, depth and length of a recession is simply to compare the total size of the economy now (GDP – which is the measure of all the goods and services a country produces) with the size before the crisis. As this ONS chart shows, this has been the deepest and longest recession on recent economic record – in fact even if you look back at previous data, it’s longer-lasting than in the 1930s or the 1920s (which, in a way, was Britain’s Great Depression).

7. But not (quite) the worst in the world

However, if it’s of any reassurance, Britain is still faring a little better than Italy on this basis. But far worse than Germany, Canada and the US, all of whom have already regained their pre-crisis peak (eg total GDP is bigger now than before the crisis hit).

8. Services are back

An analogous chart here, again using ONS data, shows the size of the various sectors of the UK economy over the course of the crisis. As you can see, the services sector, which makes up about 75% of the economy, is now bigger than it was before the crisis. And just look at the collapse of the construction sector. That and manufacturing are what have weighed down the broader economy.

9. London never had a double dip

Here’s one last version of that same GDP chart, but this one, courtesy of Capital Economics, shows the performance of different UK regions. And it shows that London and the South East never actually faced a double dip recession at all – and are already bigger, in GDP terms, than their pre-crisis peak. So if you live there and have a nagging feeling that this recession really wasn’t as bad as it felt – you might well be right. It’s the North, Northern Ireland and Wales which have suffered most.

10. Britain has EU’s biggest gulf in regional incomes

Sticking with that regional theme, this chart from Eurostat shows that the gap in disposable incomes between the different regions of the UK is greater than any other country in the EU.

11. Big gulf between generations

According to this chart from the Financial Times, the generation born between 1985 and 1994 are the first generation not to enjoy a sizeable leap in their disposable incomes in comparison with their parents’ generation.

12. The new baby boomers

The 2011 Census showed, however, that the UK population is now increasing at the fastest rate in a century. The 6.9% increase between 2001 and 2011 was even bigger than the circa 5%-a-decade increases during the so-called baby boomer period in the 50s and 60s. This is in stark contrast to mainland Europe, where birth rates continue to fall. Put it down to teenage pregnancies, put it down to immigration, but Britain’s demographics are nowhere near as worrying (in economic, if not social, terms) than many other countries.

13. The money collapse

Economists don’t tend to pay as much attention to money growth rates these days, but if they looked at M4, the broadest measure of the amount of money sloshing around the economy, they’d see that it has suffered the worst collapse since the 1950s. Not since then has broad money shrunk on a year-by-year basis. This is why the Bank of England (whose data this is) carried out quantitative easing – to prevent an even more catastrophic recession.

14. The squeeze continues

The Bank of England Governor, Sir Mervyn King, said early in 2012 that the squeeze – the fact that inflation is running far higher than wage increases – was likely to abate that year. However, as the chart above shows, while the disparity may have narrowed, there is still a sizeable gap. This is the reason families are still struggling to make ends meet – their real (eg inflation-adjusted) incomes are still falling.

15. Money’s too tight to mention

Another problem facing most families is that, despite the fact that the Bank of England has cut its official interest rates to the lowest level in its history, the rates most people pay has not reduced by anything like the same amount. The stark comparison is clear from the chart above.

16. The business lending drought

It isn’t only households who are struggling to find access to finance at the moment. The rate of bank lending to businesses has also collapsed – as you can see from this chart (from the BoE).

17. The surprisingly-strong UK Labour market

The UK labour market has defied all the negative predictions, with unemployment remaining (relatively) low, despite the renewed recession in 2012.

18. Labour market tougher for UK-born workers

However, much of the resilience in the labour market is due to employment among non UK-born workers rather than UK-born citizens.

19. The trillion pound debt pile

2012 was also [cue drum roll] the moment Britain’s national debt exceeded £1 trillion for the first time on record. However, as a percentage of GDP, net debt is still “only” around 70%, and heading towards 80%. So that’s alright then.

20. Budget 2012 and who it hit

s you probably recall, Budget 2012 was hardly a public relations coup for George Osborne. But despite all the fuss over the so-called “granny tax” and the “pasty tax”, pensioners were hit far less hard than many other types of household, according to this chart from the Institute for Fiscal Studies. Nonetheless, the poor reception from the Budget was one of the biggest difficulties to have faced the Treasury since the coalition government came into power.