Production is struck forever

Current severe recession, means that British manufacturing capacity will be struck down forever, say economists. The idea that their product is gone forever, it is very difficult to be seen by many people. But economists insist that even to revive growth steady, the total production of the United Kingdom is likely to remain permanently lower than if the crisis had not happened.
In rich countries, almost 3% of potential output has been swept by the crisis, says the Organization for Economic Cooperation and Development (OECD). As a result, economies can not rise as rapidly as was envisaged before the crisis, not ignite inflation.
„In a sense, the production capacity is lost in comparison with the situation which could be,“ said Simon Kirby, an economist at the National Institute of Economic and Social Research (NIESR). The decline in gross domestic product is structural, not merely cyclical and therefore never fully recover. „I will not go back to where we were,“ says Kirby.
There are several ways in which the economy has lost forever the case. The report on inflation, Bank of England in August argues that one way is through the withdrawal of labor. Unemployment, currently 7.8 percent, growing faster than the number of claimants of unemployment benefit. This may be because some workers to withdraw from the market forever.
Karen Ward, economist at HSBC, points increase in the number of people aged 16-24 years who are not employed on a permanent job, not attending education or training, so-called NEETS, which may be outside the labor market with years, shrinking its own earnings and those of the nation. „Maybe go to a structural deficit of labor,“ she said.
Also, labor markets suffer from the withdrawal of immigrants from the United Kingdom whose work had a great advantage in recent years.
Government Migration Service (MAC) said it expected 50 000 „vtororazredni or skilled workers to work in Britain this year, which has fallen sharply from those 69 000 people who came in 2008 This in turn has a 15 000 – 20 000 less than the previous year.
The influx of immigrants has fueled the productive capacity of the United Kingdom – it stimulates demand for goods and services, including housing, but also acted as a brake on wages, making overall production more cheaply than it could have been.
The economy also lost its long-term production capacity, when companies become insolvent and not be restarted. According to the British Insolvency Service liquidation of companies run by about 55 per day.
There were over 5000 liquidations in the second quarter – a rise of nearly 3 percent from the previous quarter and an increase of 39 percent from the same period a year ago.
„When companies go out of business, it is possible part of their capital to be discarded or be employed in less productive, reducing the potential contribution to the economy, the central bank noted in its report on inflation. Moreover, the current tight conditions discourage the creation of new companies in the industry, says another report.
By NIESR indicate that one of the most important factors for reducing the British production capacity is the price of credit.
The difference between the rates for high-quality corporate bonds and Treasury bonds has become so large until September 2008 that would reduce long-term stable production of the United Kingdom 1,5-2 percentage points, calculated from the institute.

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Norma Cohen

Financial Times