‘Sick man’ headed for big recovery

Frontier Centre, Uncategorized, Workplace, Worth A Look

LONDON – Britain, dismissed as the "sick man of Europe" in the 1970s, is on course to surpass Germany as the continent’s biggest economy in about 20 years, achieving a remarkable 50-year turnaround. And while the British can wave the flag in advance of this seemingly surprising turn of events, it must also be said that Britain is going to become No. 1 in Europe largely by default.

Sure, Britain’s productivity gain is currently running at an annual rate of 2% versus Germany’s anemic 1%. But a report by Christopher Smallwood, Barclays Bank’s chief economic advisor, notes that Germany is also losing the demographic race. Though its population and economy are now a third larger than Britain’s, the economic output gap will narrow inexorably as Germany’s working-age population shrinks by 20% during the next 25 years to 44 million from 56 million while Britain’s rises slightly.

Britain lost its No. 1 European economic ranking all the way back in 1959, when Germany’s "economic miracle" pulled the country out of the ashes of the Second World War. Britain edged ahead of France as the continent’s second-biggest economy in 2000. And it has also edged ahead of Germany on a per-capita gross domestic product basis, with the average Briton producing US$30,200 annually versus US$29,200 in Germany.

Smallwood attributes much of Britain’s economic outperformance to the structural changes forced through in the 1980s by Margaret Thatcher’s Conservative government — a feat Germany and France are struggling to emulate. He says the Germans will eventually succeed in making the needed changes to the welfare state, but the drop in its working-age population will consign it to a lesser economic role in Europe.