Euro Zone Slowdown -
Global Economics Weekly Brief
Last week confirmed the pace of the UK’s recent economic growth, whilst evidence of a slowing housing market mounted. The slowdown in the Euro zone is altogether much more concerning, arguing for yet more action from the European Central Bank. European main land in serious trouble! Mass unemployment/economic decline/vast borrowing/Euro zone fall out!
Still consuming. The second estimate of UK GDP growth showed UK consumers still going strong in Q3, while the government also chipped in with higher spending. But there were two clouds to the silver lining. Business investment fell for the first time since Q2 of 2013, while net exports were a drag on growth, as exports fell and imports grew. The `strong pound` and weak external demand were clearly at play. While the pace of growth is welcome there will still be questions about the balance and sustainability of the UK's growth as we go into 2015. Globally there is a slow down!
Services flying, investment flagging. UK services output increased 0.8%q/q in Q3, faster than previously thought. The good news was widely shared. All four major sector groups grew, with transport, storage & communications growing 1.3%q/q and business services and finance growing 1.1% on the quarter. With transport charging along, investment in transport equipment was the fastest growing investment asset, followed by non-residential buildings. For the first time since 2012, investment in housing fell. But perhaps most notable of all is that investment in intellectual property products fell for the second consecutive quarter, something that last happened back in 2009. Many sectors now in decline, what will 2015 bring?
Slowdown. There were 16% fewer mortgage approvals for house purchase in October than a year ago according to the British Bankers' Association. In a further sign of a slowing housing market, 37k mortgages were approved, a level last seen in May of 2013. Despite this, the total value of mortgages outstanding grew again, by 1.6%y/y. The number of credit card transactions hit a record high of 147mn in October and 18%y/y jump on the previous year. With earnings growth still weak, retail sales are being supported by rising employment and higher borrowing on one side and heavy discounting on the other. Domestic debt rapidly rising/ UK government debt rapidly rising/ boom and bust on its way in 2015 again!
Not enough hours in the (working) day. Britain wants to work longer; that's the message from the latest survey of the UK labour market. 10% of workers want to work longer hours, amounting to almost three million people. Naturally the majority of underemployed workers are in `part-time jobs`. But there are also a sizable 1.2 million full-time workers who want to work overtime. With unemployment falling the Bank of England is increasingly interested in underemployed workers as they are a big component of its labour market slack measure. But on this evidence that slack is concentrated in particular areas with bar and restaurant waiting staff, cleaners and shop assistants being keenest for extra work. There are still many people unemployed that is over 3 million people in real terms!
A matter of life and death. The number of newly born businesses in the UK rose by 29% between 2012 and 2013. That's almost 350,000 new enterprises. Over the same period, the chance of a firm surviving beyond its fifth birthday fell from 44.6% in 2012 to 41.3% in 2013. Now, it may seem that a lower business survival rate reflects a weak economy. And sometimes it does. But not always. A productive economy requires a healthy churn of businesses, where fresh ideas are tried and tired ones laid to rest. For example London, hardly the nation's backwater of productive development, has one of the lowest five-year business survival rates at 37.1%. So on these measures, a rise in business births, coupled with a fall in chance of survival, may well signal economic heath and not sickness. Many new business start-ups are people who cannot secure a full time job!
Better still. US GDP grew faster in Q3 than first thought, by 3.9%y/y rather than 3.5%, almost certainly placing it first in the G7 growth league table. Non-housing investment was particularly strong, up 6.2%y/y. That suggests firms are confident enough about their prospects to commit to projects. And by augmenting capacity this extra investment helps keep inflation low: the prices consumers paid for goods and services rose by only 1.2%y/y in Q3. The Fed will be encouraged that growth continues and these numbers give it no reason to consider raising rates soon. US debt is $17 trillion and rapidly rising, who will pay this back?
More to come. Encouragement about the US economic situation sits in stark contrast to that in Europe. Unemployment was unchanged in the Euro zone in October at 11.5%. (many Europeans are in the UK) Nevertheless there have been some improvements with Portugal, Spain and Greece registering some of the biggest falls in joblessness. (Many people from these countries are in the UK) More worrying though is that Italy is going the other way as unemployment pushed up to 13.2%, almost a percentage point higher than a year ago. October also saw inflation fall to 0.3% and with the oil price continuing to drop it is likely to fall further. This puts the Euro zone perilously close to deflationary territory. The ECB has deployed many unconventional policies this year, most recently buying corporate debt, but the prospect of falling prices means there’ll be more to come. That probably means quantitative easing in 2015 and the ECB could announce it as soon as this week. Many Main land European countries are in deep trouble!
Controlled, for now. China is still managing to keep new credit growth controlled, or certainly relative to its recent past. New credit over the past four months is around 10% less than the corresponding period last year. It means that the stock of credit is growing at around 16%y/y, which is the slowest pace since early 2006. The authorities are showing restraint for now. The question is whether they can continue to do so as growth slows further. The future is slower growth and borrowing to high, the bubble is about to burst!
The return of volatility. After a summer of calm financial markets woke up with a start last week. There were big falls on the stock exchanges around the world as markets grew more pessimistic about global growth. The pain was felt in commodity prices too, with oil now down to $75 a barrel. Weaker growth forecasts translated into delaying the expected date that interest rates start rising around the world. In response yields on bonds in the UK, US and Germany fell sharply. But not everyone moved in the same direction. Government borrowing costs spiked in Spain, Italy, Portugal and Greece. A lack of growth is a big threat to the credit-worthiness of these countries, something investors have started worrying about again. Money lending to these countries is drying up! Global growth, where is it? Trouble on the way with Russia putting pressure on Europe and world unrest!
Borrowings globally. Are we on the way back to the many financial disasters the world have experienced before? Are bankers etc leading the world to another financial crisis? Read history and it will show you the future! When will the world change its aptitude on greed?
Yes. Only 85 Richest People have Half of World`s Wealth! Growing by the day and higher than in 2008! Wealthiest `85 people` have as much as poorest `3.5 billion people` globally! The 85 richest people on the planet have accumulated as much wealth between them as half of the world`s population, political and financial leaders have been warned ahead of their annual gathering in the Swiss resort of Davos. Their wealth is estimated as $18.5 trillion cash with investments in companies hidden away in tax havens around the world. The power of these 85 people on the world leaders is staggering! While 70% of people globally live in countries where the gap between rich and poor has grown rapidly over the last few years. Where will it end? What do you believe will happen globally because of the wider gap of the poor becoming more poor and the rich getting richer?
About the Author Colin Thompson
Colin is a former successful Managing Director of Transactional/Document Manufacturing Plants, Document Management/Workflow Solutions companies and other organisations, former Group Chairman of the Academy for Chief Executives, Non-Executive Director, Mentor - RFU Leadership Academy, Mentor - Coventry University, Mentor - The Chartered Institute of Personnel and Development, author/writer Business Advice Section for IPEX, Graphic Display World, NewsUSA, GraphicStart, many others globally, 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/Software/PDF and over 2000 articles and 35 books published on business and educational subjects worldwide. Plus, International Speaker/Visiting University Professor.
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Written and submitted by:
Dr Colin Thompson
Direct: + 44 (0) 121 247 4589
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The Cavendish Academy
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Euro Zone Slowdown