Liam Dann: Plenty of twists left on road to recovery

NZ Herald business editor Liam Dann. Photo / Richard Robinson

A month out of the office is a rare treat for any journalist. As winner of the Newspaper Association's Cardiff Fellowship, I spent May immersed in the British economy.

I visited the Bank of England and the London Stock Exchange - for off-the-record briefings. I interviewed senior investment bankers, economists and senior executives such as Virgin Media CEO Neil Berkett and Ernst & Young's Pip McCrostie.

I met journalists working in the financial media and visited newsrooms. I also met a PR guru specialising in the financial sector and Claire Oldfield, lead author of a study into the effectiveness of the media in covering the financial crisis (published by Editorial Intelligence).

I read hundreds of newspapers. During the northern spring there was no shortage of big financial stories. The Bank of England opted to print another £50 billion ($127.5 billion) in its quantitative easing programme (taking the total to £125 billion). Telco BT announced its worst result ever and said it would shed 20 per cent of its workforce. Ratings agency S&P downgraded its outlook on Britain's credit rating. The British car industry was on the edge of collapse, with GM's European division up for sale. Shell investors voted down management's planned pay scheme.

But those stories were less extraordinary than those of the previous six months and generally did not make it to the front page. Public anger was directed towards Parliament as the MPs' expenses scandal snowballed.

While the collapse of the finance sector made great copy for the media, the recovery is more problematic.

Things won't pick up in a way that lends itself easily to a single narrative thread. We are going to see different parts of the economy recovery at a different pace. That can make our coverage look contradictory and confusing to casual observers.

Commentators use the idea of a "W shaped" recovery to explain what might be happening - a bounce, then a slump before the real recovery begins. In May, this was the most fashionable alphabet-shaped recovery scenario. Previously, the L-shaped and U-shaped outlooks have had their moment of popularity among the pundits.

But even the relatively lumpy W is likely to be an oversimplification. Basically, good and bad news are going to overlap for some time. Markets will bounce around until they find an equilibrium with real levels of demand in the new, downsized economy. Once they find that level, sustained growth can resume.

It is clear however, that from the street Britain looks nothing like a country in the grip of the worst financial crisis since the 1930s.

So - as in New Zealand - it is easy to see why many people feel a disconnect between the economic news they read and their own reality.

The financial crisis reached near-apocalyptic heights late last year and that was not unreasonably reflected in media coverage. But it is important to recognise that nightmare forecasts have largely been averted. Worst-case scenarios for the recession now don't look out of whack with what we saw between 1987 and 1992.

There is a case to be made that for countries like Britain, the full pain of the downturn has simply been deferred for future generations. Government spending to prop up the economy now will have to be paid for one day.

But the idea that we now live in a completely different world doesn't ring true with most people's experience.

Capitalism isn't going anywhere. Even credit - the source of the current woes - remains entrenched in the fabric of modern society. As one news editor said to me: "Are people all going to start saving for a new fridge so they can go in and pay in cash like people did in the 1950s? I don't think so."

Quietly, bankers will admit that even complex credit derivatives are unlikely to disappear for long. We will see different structures, closer regulation and, hopefully, closer scrutiny of new financial products but we may not see the kind of brave new world many expected after Lehman.

There is no single revelation that the examination of a larger economy can offer that will suddenly transform our understanding of New Zealand's position in the financial crisis.

But four weeks immersed in the British experience has highlighted the similarities rather than the differences in the challenge we face. It offers a reminder that the New Zealand experience is far from unique.

The thing that everyone I talked to agreed upon is that nobody really knows what will happen next. People are still shellshocked by the events of late last year. They are starting to stand back from things, to try to assess the damage. But no one is keen to start offering forecasts.