Christmas, 2012 and your Global Economics Outlook...
Global Economics Weekly Brief
The Christmas wish list will be particularly long and heartfelt this year, for politicians, businesses and households alike. First placed will be an orderly resolution to the Eurozone debt crisis, and, since it’s Christmas, some measures thrown-in to encourage long-term growth.
The UK, like most of the western world, will also be asking for a little more economic growth next year for Christmas. This will be tricky – Santa is good, but perhaps not that good. One brighter star is that UK inflation should ease in 2012, lifting the pressure on households’ purse strings a touch. The US has also finished the year with a festive-sized helping of economic growth, at least for these lean times. Yet they too will be asking for more, and again this will be hard to deliver, as the Fed explained last week. This is the last Global Economics Weekly Brief until the New Year and I wish all our readers a happy and restful Christmas break.
UK inflation slowed for second month in a row. The annual rate of CPI inflation fell to 4.8%y/y in November, down from 5% in October. A lower rate of food and transport price inflation were the major reasons for the fall. Core inflation, which excludes food and energy, slowed in November which confirms that underlying price pressures are beginning to ease. This should continue as temporary factors that kept inflation high, like VAT, fall out of the calculations. What will 2012 bring us?
UK unemployment rate unchanged at 8.3%. (The true rate % is much higher!) The UK unemployment rate was unchanged between October and November but the number of unemployed continues to rise rapidly. The private sector is not creating enough jobs to offset public sector job losses. Long term unemployment (>2 yrs) increased to its highest level since July 1997 and youth unemployment increased again rapidly. Two-fifths of the unemployed are now under 25. Both of these trends are troubling as they could damage the economy’s ability to grow. Given labour market slack, wage growth unsurprisingly remains anaemic at 2%y/y. Why are the UK still importing foreign workers?
Slow start to Christmas shopping, especially on the High Street. The total volume of UK retail sales fell by 0.4%m/m in November as the squeeze on real household incomes hits homes. Stores have found it particularly difficult as consumers continue to switch towards online shopping. Non-store sales have grown by almost a fifth over the past year, and internet sales now account for more than one in every ten pounds spent on retail sales.
House prices are still falling, but transactions may be starting to rise. A net balance of 17% of surveyors believe UK house prices fell in the three months to November, compared with 24% in the previous three months. But the supply and demand balance is getting looser, which signals more falls. The sales to stock ratio fell for the second consecutive month as average stocks per surveyor increased to their highest level since December 2008. There was better news on transactions. A net balance of 14% said sales were higher in the three months to November, and for the third month in a row more surveyors thought buyer enquiries were increasing than falling.
The Eurozone crisis rumbles on. Despite the accord agreed at the 9th December EU summit, there are big doubts about whether this will be enough to solve the crisis. First, it’s not clear that the accord will actually achieve the required amount of fiscal discipline – especially given past failures in abiding by budget deficit rules. Secondly, there is no attempt to promote growth within the Eurozone, which is essential in order that debt can realistically be dealt with. The markets have reacted accordingly. The euro weakened against Sterling and the US dollar as investors shunned the euro. One euro is now worth 84p, down from a high of 91p earlier this year. More trouble to rise in 2012 with the Euro in more serious down-fall!
No change to US monetary policy. In the US the Fed kept rates on hold but issued a slightly more upbeat statement after its meeting. The Federal Open Market Committee noted the good news about a continuing recovery, falling inflation and "some improvement in overall labour market conditions". But it was qualified optimism. Slowing business investment and strains in global financial markets mean there are still plenty of downside risks. More unemployment in 2012!
Chinese manufacturing output is still falling. The flash manufacturing index survey rose to 49 in December from 47.7 last month. The rise is welcome, yet output remains below the magic 50-mark. While China’s growth is not collapsing, the authorities are concerned over the slowing trend. To this end, next year may see further monetary loosening and increased government expenditure to maintain the China growth story. Yet investment already accounts for around half of all output, so how much further can it rise? Globally more people are not buying Chinese goods!
2012 could prove even wilder ride than 2011 for world economy
The ancient Mayans attached special significance to 2012, possibly the end of time. That has spawned a rush of apocalyptic literature for the holiday season.
But you don't have to believe the world is about to end to realise that next year contains perhaps the widest range of political risks to the global economy in recent history.
With elections and leadership changes in the most powerful countries, Europe in crisis, ferment in the Middle East and worsening economic hardship driving unrest and discontent everywhere, 2012 could be just as volatile as 2011 if not worse.
The current year may yet carry a sting in its tail, with worries over the euro and jitters over a possible Israeli strike on Iran likely to keep financial markets and policymakers on tenterhooks all the way to the New Year.
More than three years after the collapse of Lehman Brothers prompted the worst financial crash since the Great Depression, economic turmoil looks to be driving political upheaval in what could become a particularly disruptive feedback loop.
Economic stresses -- from rising food prices to worsening economic hardship in the developed world -- were at the heart of many of 2011's political stories. As they intensify, political volatility, gridlock, confrontation and conflict -- whether domestic or international -- look set to worsen.
"It's going to get worse before it gets better," said Jonathan Wood, global issues analyst at London-based risk consultancy Control Risks. "If you look at what's been driving events this year, none of the factors has gone away and many of the economic drivers are still growing."
Presidential elections in the United States, France and Russia and the dual transition of power at the top of China's Communist Party will add to the uncertainty. They may make it harder for political leaders to find compromises or push through tough policy choices.
French fear consequences of triple-A rating loss
Most French voters fear serious damage to the economy if France loses its triple-A credit rating, despite assurances by President Nicolas Sarkozy.
2012 could prove even wilder ride than 2011 for world economy
With elections and leadership changes, worsening economic hardship driving unrest and discontent everywhere, 2012 could be just as volatile as 2011 if not worse.
Euro ministers 'to hold debt crisis talks
Eurozone finance ministers will hold telephone talks on debt crisis on Monday to flesh out decisions taken at a key summit earlier this month to save euro.
We have another global crisis that needs urgent attention by `skilled and experienced people` who can do the job right!
--- --- ---
`Building An Excellent Business!` is available for immediate purchase by visiting the secure Cavendish eStore online at: http://www.cavendish-mr.org.uk - customers can download this e-book in PDF Acrobat format immediately after purchase.
More Economics and Business Inspiration:
`Accelerate with Impact` -
by Colin Thompson ISBN: 978-1-84549-289-2
Accreditation: UK Registered Learning Provider:10025755
Note: About the Author Colin Thompson
Colin is a former successful Managing Director of Transactional/Print Manufacturing Plants, Print Management/Workflow Solutions companies and other organisations, former Group Chairman of the Academy for Chief Executives and Non-Executive Director, helping companies raise their `bottom-line` and `increase cash flow`. Plus, helping individuals to be successful in business and life in general. Author of several publications, research reports, guides, business and educational models on CD-ROM's/Software and over 400 articles published on business and educational subjects worldwide. International Speaker and Visiting University Professor.