Island should focus on productivity

Wednesday 12 October 2022

There is a strong prospect of inflation falling and interest rates stabilising next year - but the global economy is in for a bumpy ride for some time to come.

They were the themes of a talk given by experienced economist Andrew Hunt to members and guests of local think tank GPEG (Guernsey Policy & Economic Group) this week.

Mr Hunt said his best advice for Guernsey was to focus on productivity - which is a measure comparing goods and services produced with what was required to produce them.

Asked what options Guernsey has to grow its economy, Mr Hunt said: "The only one which gives us social stability is to improve productivity. Look at every project against its potential for productivity growth."

As reported by Express today and yesterday, productivity in Guernsey's economy will feature heavily in next week's States' debate about population policy and whether the number of people living in the island should be increased with more inward migration.

Pictured: Andrew Hunt was invited to talk at an event hosted by GPEG (Guernsey Policy & Economic Group), a local think tank.

Mr Hunt now runs his own economics consultancy business and previously spent 12 years advising Dresdner Bank, initially in the UK and then in Asia.

He told the GPEG event that the greatest international and national risks to Guernsey's financial services sector - the largest part of the island's economy - include recession driven by a debt crisis in China, the potential for consequential difficulties for Hong Kong as a financial services centre, and the possibility of further deregulation in the City of London.

"I think Jacob Rees-Mogg [the UK's new Business Secretary] does indeed intend to have a bonfire of regulations, including of financial services," said Mr Hunt. "If your biggest competitor is deregulating, that's a pretty big threat to Guernsey."

Mr Hunt also said that the recent mini budget announced by UK Chancellor Kwasi Kwarteng contained "not much good news for Guernsey".

"Adding demand stimulus to an overheated economy with a positive output gap was ill advised or not advised," he said.

Pictured: Andrew Hunt spoke about a looming debt crisis in China which "will depress global growth" and "weaken commodity and goods prices".

Mr Hunt touched briefly on European economies in the wake of widespread speculation about the vulnerability of several of the continent's best-known banks, including Credit Suisse and Deutsche Bank. 

"Europe's single monetary policy is hugely problematic," he said, citing the need for higher interest rates in Germany and the potential overheating of Ireland's economy at the same time as the economies of Italy and Greece remain sluggish.   

Mr Hunt thought it was possible that Guernsey could attract "safe haven money from dysfunction in the Eurozone". 

But he warned that "crucially, Guernsey's real exchange rate is overvalued" and said: "If the currency cannot correct this, then either productivity needs to rise or property prices deflate."

Mr Hunt also spoke about structural risks to some economies around the world which have become too reliant on financial services over the past 30 years, including "income disparity, lack of wage growth, dissatisfaction and unstable politics, and poor productivity gains...Is that sustainable? I certainly don't think it is".

Pictured: Lord Digby Jones spoke briefly about GPEG's plans for growth.

GPEG's Chairman, Lord Digby Jones, said that Mr Hunt's talk was an example of the think tank contributing constructively to political and economic debate in the island.

Guests at the talk included economics students from the States' Sixth Form Centre at Les Varendes.

Lord Jones also announced new directors of GPEG, including experienced hotelier Ian Walker, and told Express that one of the think tank's aims was to engage with "broader parts of society".