by Richard Horton

There has been much talk in the business pages of a two speed economic recovery. A recovery that sees the economies of the developing world grow quickly while the developed world sluggishly heaves itself out of the remnants of the financial crisis. The long and painful rebalancing of a number of Europe’s economies, the UK’s included, is forecast. And yet life, or should that be economics, is not that straightforward. Within the developed world and especially within Europe, we are witnessing our very own two speed economic recovery.

Economists at ING Group describe how “a deep economic chasm” has formed between core euro-zone countries and the rest. The UK may well sit outside the euro-zone but that does not mean that it sits outside of Europe’s two speed economic recovery. At first glance, the GDP figures for the fourth quarter of 2010 may point to the UK being firmly rooted on the sluggish side of the European chasm. But what is more telling than GDP figures or manufacturing production numbers is consumer and business confidence.

Two weeks ago, the BBC reported the findings of a social research survey published by GfK NOP. The results showed how consumer confidence between December and January had plummeted by its largest monthly fall since 1994. UK consumers were not just more worried about their current financial situation compared to a year ago but they were also more concerned about the future of the economy compared to a year ago. In contrast, and on the other side of the European chasm, the same survey indicated that German consumer and business confidence had reached a four year high in January.

Not long after the release of GfK NOP’s findings, the federal statistics office in Wiesbaden published figures showing that Germany’s retail sales had unexpectedly fallen for a second month in a row in December. While no more than a week later the European commission produced data showing that industrial orders in Germany had dropped by 3.4% month-on-previous-month.

Most economists had predicted the drop in manufacturing orders, as November had seen an unexpectedly high upturn while the general trend in manufacturing remained overwhelmingly positive. But with Germans spending less in den Kaufhäusern, the one thing these figures do prove is that it is not so easy to explain the differences between UK and German consumer confidence through simple stats.

If high street spending had fallen unexpectedly for two consecutive months on this side of the channel, there would be real worry – and not just because our economy is more reliant on the service sector. To really understand what has led to such wildly differing levels of consumer confidence we need to add a dash of social, cultural and political context.

German politicians, and even journalists for that matter, rarely talk down the economy in the way that we are used to in the UK. There is an underlying belief in the strength of the German economy, a national pride in the country’s position as a manufacturing superpower. That status must be defended and strengthened. The UK may have been the cradle of the industrial revolution, but its recent manufacturing legacy, at least in the mind of the British public, is one of failure. Shipyards, steel works, engineering sheds and car plants across the country have long been padlocked up and left to rust away. So people believe.

Beyond the public’s justifiable concerns about our post-credit-crunch debt and deficit, and beyond our unfortunately well-established post-manufacturing image, a more tangible and more damaging belittling of the British economy is occurring. Almost every Wednesday at noon, in almost every government press release and in almost every piece of Tory campaign literature, our economy is deliberately talked down.

It may be too easy to say that Cameron and Osborne are talking down the economy, or, rather, talking up the deficit, at every opportunity and that with every cynically negative remark business and consumer confidence is being further eroded. That is the type of statement that gets dismissed as “deficit denial”. But that is the tall and the short of it.

In order to undermine Labour’s economic credibility and to justify ideologically motivated cuts, the Tories must constantly chip away at the public’s already shaky belief in the economy. In PMQs when Cameron notes unemployment figures, he does not do so in solidarity with the 2.4 million people out of work, but to reemphasise his justification for his policy of cuts. Is it any wonder then that you shut your purse and start to revise the minutiae of your family’s life when you’re constantly told that so many people are out of work and that your job could still be next? Is it any wonder that your confidence as a consumer shrinks just that bit more?

This is yet another example of where a good campaigning and electioneering tactic for the Tories has transformed into a poor strategy for government. Talking down the economy and up the deficit is excellent at focusing the attention of the electorate, but the public wants to be given hope by its prime minister.

In Germany, the 2009 Federal elections produced a coalition government similar in mix to the one here in the UK – conservatives and orange book-type liberals. However, in Germany it is more difficult to make cuts on the scale and at the speed that is occurring in the UK. The federal structure devolves a wide range of budgetary responsibilities to state governments and the funding of projects and services is often an intricate web of subsidies and budget lines that is difficult to unravel. The situation in the UK where the funding settlement for local authorities was decided centrally and then forced down onto boroughs and cities for implementation could not happen to the same extent in Germany.

That is not to say that there are no planned cuts to the public sector in Germany. Up to 15,000 civil service jobs could be lost over the next three years, while the 250,000 strong military could lose 40,000 soldiers, sailors and aviators. Although some subsidies to parents, similar to our child benefit, will be cut, there is no impending feeling that the fabric of German life will be radically altered. There was no housing bubble – the culture of renting and buying properties is quite different to ours. Germans feel that they have lost less and will lose less from the financial crisis.

During the general election, Labour focused much of its economic flag-waving on “building jobs and industries for the future” and on creating a low carbon economy. Gordon Brown was seemingly always photographed talking to a group of apprentices stood next to a huge high-tech turbine or other piece of green engineering. At the centre of this envisaged low carbon economy would be advanced manufacturing – something that despite public perceptions we actually do very well in the UK.

I think it is about time that Cameron starts to get himself photographed with our future technicians and engineers talking about his plan for growth, his plan for future jobs and industries. It may not have worked for Brown during an election he had already lost, but Angela Merkel is doing it right now.

Richard Horton is a business strategy analyst and Labour party activist.

Tags: Angela Merkel, consumer confidence, Germany, Richard Horton

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