David Cameron has issued a stark message that “red warning lights are flashing on the dashboard of the global economy” in the same way as when the financial crash brought the world to its knees six years ago.
Writing in the Guardian at the close of the G20 summit in Brisbane, Cameron says there is now “a dangerous backdrop of instability and uncertainty” that presents a real risk to the UK recovery, adding that the eurozone slowdown is already having an impact on British exports and manufacturing.
His warning comes days after the Bank of England governor, Mark Carney, claimed a spectre of stagnation was haunting Europe. The International Monetary Fund managing director, Christine Lagarde, expressed fears in Brisbane that a diet of high debt, low growth and unemployment may yet become “the new normal in Europe”.
Cameron has adopted the more sombre tone in the runup to the chancellor’s autumn statement on 3 December, when the Office of Budget Responsibility will produce new growth forecasts and spell out the impact on public finances.
“The eurozone is teetering on the brink of a possible third recession, with high unemployment, falling growth and the real risk of falling prices too,” Cameron writes. “Emerging market economies which were the driver of growth in the early stages of the recovery are now slowing down. Despite the progress in Bali [trade talks in 2013], global trade talks have stalled while the epidemic of Ebola, conflict in the Middle East and Russia’s illegal actions in Ukraine are all adding a dangerous backdrop of instability and uncertainty.”
The emphasis on potential dangers, balancing some more hubristic ministerial accounts of the state of the UK economy, reflects Cameron’s concern – underlined by conversations at the G20 – about the extent to which Britain can detach itself from gathering economic storms.
Politically, Conservatives believe an emphasis on the risks still facing the UK will make anxious voters recoil from handing stewardship of a fragile economy to a relatively untried Labour team.
Some recent polling has seen the economy decline as an issue for voters, partly because there is a belief that the recovery is secured, leading to issues such as the health service and living standards, which have been seized upon by Labour, to rise in importance.
But with Germany, Europe’s manufacturing powerhouse, growing by just 0.1% in the third quarter, the eurozone economy appears to be faltering.
A European Central Bank (ECB) survey showed that inflation would remain at worryingly low levels before picking up slightly next year. The annual inflation rate in the eurozone was near a five-year low of 0.4% in October and the ECB expects a rate of 0.5% for 2014 – well below the target of close to 2%.
The EU may also be only one or two new rounds of sanctions away from pushing Russia into a deep recession as punishment for its interference in Ukraine, a point made in Brisbane by the Russian president, Vladimir Putin.
Cameron stresses that retreating from the world or imposing extra tax and borrowing may seem easy solutions but they would instead prove only to be a repeat of the mistakes of the past.
He claims that the G20 communique hammered out over the past few days endorsed Britain’s determination to use monetary policy to support growth and he would not waver on his policy of paying down government debt.
The summit, dogged by controversies over Ukraine, extra aid to fight Ebola and climate change, was hailed as “a weekend of achievement” by the Australian prime minister, Tony Abbott. He said the group of leading nations had managed to “shift a gear”, by moving from a responsive to a proactive stance on world events.
World leaders pledged 800 separate measures designed to lift their combined economic growth by an additional 2.1% above the current trajectory by 2018 compared with 2013 – a measure the IMF and OECD have calculated would add more than US$2tn (£1.3tn) and millions of jobs to the global economy.
Much of the growth would come from infrastructure investment and getting an extra 100 million women into the labour force.
None of the commitments are binding on national governments, so there is some scepticism that the Brisbane action plan will be able to have the transformative effect it promises, but Cameron said if the pledges were kept, it would mean “an extra Australia and New Zealand” added to the world economy. The G20 had credibility, he argued, since it had shown its effectiveness by pushing through reforms to achieve bank stability in the past.
He said the G20 had taken fresh steps to clamp down on corporate tax avoidance, pointing out that 92 tax authorities were now cooperating by sharing information which would enable G20 countries to raise an extra $32bn in tax revenues.
“This is not some arcane dry and dusty subject,” Cameron said at his closing press conference. “The more we can make sure big corporations pay their taxes properly, the less we have to tax hardworking people who I want to make sure can keep more of their own money so they can spend as they choose.”
But the TUC general secretary, Frances O’Grady, said: “Too many world leaders seem to think any jobs will do when they should be thinking about the security and quality of those jobs. The same story of casualisation, part-time work and insecurity in the labour market is spreading across the world.”
Chris Leslie, shadow chief secretary to the Treasury, said: “David Cameron claims his policies are working, but as even Sir John Major admits, most people still aren’t feeling the recovery.
“Working people are £1,600 a year worse off under his government, borrowing is going up so far this year and exports have fallen behind our competitors. David Cameron should be trying to strengthen growth and make sure working people finally benefit from it, not making excuses for slower growth.”
