Business Blog

18 April 2013 Last updated at 05:44 ET

Doubts have been cast on research that has been crucial in supporting governments' austerity programmes.

Two Harvard economists found in 2010 that a country's output falls substantially as soon as its total public debt passes 90% of its annual output or gross domestic product (GDP).

But two other economists say they have found errors in the work which means the relationship "evaporates entirely".

The original researchers admitted mistakes but say their message stands.

Carmen Reinhart and Kenneth Rogoff, the economists behind the original research, said in a statement: "It is sobering that such an error slipped into one of our papers despite our best efforts to be consistently careful," but they added that the "central message" of their research was still valid.

The new study by Robert Polin, Michael Ash and Thomas Herndon from University of Massachusetts, which was made public this week, found coding errors in spreadsheets used in the 2010 study, which they said meant that growth did not fall as fast as was claimed when debt passed 90% of a country's gross domestic product (GDP).

Robert Polin told the BBC that between 2000 and 2010, the average rate of growth in countries with debt above 90% of GDP had actually been higher than it had been in countries with lower debt to GDP ratios.

"So their relationship, which they're saying is so fundamental for understanding policy - the relationship evaporates entirely," he told BBC Radio 4's Today programme.

Policy influence

Carmen Reinhart and Kenneth Rogoff's paper Growth in a time of debt looked at 20 advanced economies since 1945 and found that GDP growth had been between 3% and 4% when debt had been below 90% of GDP, but that the average had collapsed to -0.1% when debt had risen above 90%.

The new research says that growth only falls to an average of 2.2% when debt passes 90%.

The result is important because governments were encouraged by the original paper to take drastic steps. such as severe austerity measures, to avoid borrowing any more money once their borrowing reached 90% of annual output.

The authors of the new research argue that governments might have been better off borrowing more money to spend on trying to encourage economic growth and reduce the severity of the recessions their countries were facing.

17 April 2013 Last updated at 15:48 ET

The US central bank has slightly upgraded its view of the US economy, saying it expanded at a "moderate pace" in recent months.

The view comes in the Federal Reserve's latest Beige Book report, which covers the period from late February to early April.

The Fed highlighted growth in the manufacturing and construction sectors.

In its previous beige book report in January, the Fed said growth was only "modest to moderate".

In its latest report, the Fed also said that carmakers were performing strongly.

Yet it cautioned that consumer spending was only increasing at a "modest" pace.

The most recent official figures showed that the US economy grew at an annualised rate of 0.4% in the fourth quarter of 2012.

Meanwhile, official data from the Commerce Department showed that retail sales fell in March, down 0.4% from February.

18 April 2013 Last updated at 01:56 ET

Japan, the world's third-largest economy, has reported a record trade deficit for the year to 31 March.

The deficit hit 8.17tn yen ($83.4bn; £54.5bn) as a slump in global demand hurt exports, while greater domestic consumption of fuel boosted imports.

A weak yen, which has dipped nearly 20% against the US dollar since November, also boosted the value of the imports.

Analysts said the deficit was likely to shrink in the coming months as the weaker yen will help Japan's exports.

The yen has dipped after policymakers introduced aggressive measures aimed at spurring a fresh wave of economic growth and stoking domestic demand.

Trade shift

Japan, which has traditionally been known for its exports, has seen a shift in its trade pattern in recent times.

It has seen its imports rise, driven mainly by an increased demand for fuel.

This was after most of its nuclear reactors were shut after the earthquake and tsunami in 2011 which damaged the Fukushima Daiichi nuclear plant and resulted in radiation leaks.

As a result, utility providers have had to turn to traditional thermal power stations to generate electricity.

These power plants need natural gas and coal to operate, resulting in a surge in imports of these commodities.

Meanwhile, its exports have been hurt by a slump in demand from key markets such as the US and Europe, while a territorial dispute has hurt sales to China.

That has seen it report a deficit for nine straight months.

Delayed impact

Policymakers have been hoping that their recent measures, which have weakened the currency, will help the country's exporters.

Continue reading the main story

A weak currency makes Japanese exports more affordable to foreign buyers and also boosts profits of exporters.

However, analysts said that while a weakening currency has an immediate impact on the value of imports, it takes longer for it to help exports.

At the same time, exports are also influenced by global demand, which analysts said had remained subdued.

"The broad picture remains intact as the weaker yen is having more of an impact on boosting imports than exports, while the recovery in the world economy, particularly China, is tepid," said Takeshi Minami, chief economist at Norinchukin Research Institute in Tokyo.

"We'll need to wait at least until around summer before the weaker yen enhances price competitiveness of Japanese products abroad to boost exports."

There were some signs of recovery in the data for March, which showed a 1.1% increase in exports during the month, from a year earlier.

That was better than the 0.4% gain that many analysts had forecast.

17 April 2013 Last updated at 12:25 ET

UK unemployment rose by 70,000 to 2.56 million between December and February, the Office for National Statistics (ONS) has said.

It pushed the unemployment rate to 7.9%, raising further questions about the UK's economic strength.

The number of people in employment also fell, while earnings growth slowed considerably, according to ONS data.

But there was positive news on the number claiming Jobseeker's Allowance last month, down 7,000 to 1.53 million.

'Challenges ahead'

The number of people in work fell by 2,000 in the latest quarter to February, to just under 30 million, the first time the figure has dipped since autumn 2011.

And the ONS said that average regular pay, excluding bonuses, rose by 1%, the lowest since records began more than a decade ago.

The news hit sterling, with the pound falling more than a cent against the dollar on concerns that a weaker labour market pointed to worsening economic prospects.

It was up against the euro as the equity markets in London closed, having reversed earlier losses.

Continue reading the main story