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Eurozone recession - Global Economics Weekly

Eurozone recession on the Horizon?

The Global Economics Weekly Brief

The UK Budget wasn’t very exciting from an economic perspective. The Chancellor’s statement: “There will be no deficit funded giveaways…nor do we need to tighten further.” translates into: “tight fiscal policy and ultra-loose monetary policy will remain the central plan for economic recovery”. However, there has been concern that this plan might not provide enough growth.

In an attempt to allay these fears, Chancellor Osborne took the opportunity to put a bit more meat on the bones of the Government’s industrial policy. Some elements designed to improve productivity, such as improving education and the planning system, are familiar from previous eras. But there also seems to be an emerging policy to support the technology, life sciences and energy sectors. Without any cash to spend it will be a long haul though. Sticking to Plan A will keep the Government’s hands tied for some time, so it’s unlikely that this will have been the last Budget that was much ado about nothing. What will the future hold?

Public sector borrowing shot up in February. It was no surprise George Osborne stuck to plan A after he saw February’s borrowing figures. The net public sector borrowing figure (excluding support for banks) rose to a shocking £15.2bn, almost twice the £8bn expected and reversing January’s £7.9bn surplus. Thankfully this wasn't enough to imperil the Government’s borrowing target for the financial year, but it does underline how long and arduous the process of reducing the deficit will be. What are these Civil Service employees doing spending so much in one month? Is there no control in the Government departments?

UK inflation stuck to the script in February.
The Monetary Policy Committee will have been relieved to see that UK consumer price inflation fell to 3.4% in February - its lowest rate for 15 months. The largest downward pressures came from gas and electricity bills, air fares and a dramatic decline in the price of digital cameras. But on the other side of the coin, alcohol prices moved up. So far, inflation is sticking to the script, but it is still well above its 2% target and the rate of growth of earnings. As long as this remains the case, consumers will continue to feel the squeeze. Food, motor fuel moved up in price dramatically! These are the rises people are concerned about!

A reality check on the UK high street. The effect of the strain on consumers’ purses was brought home clearly in retail sales figures. Retail sales fell sharply in February and January’s data was revised down too. Sales fell by 0.4%m/m in value terms in February, or by 0.8%m/m in volume terms. The decline was broad-based; even non-store sales, e.g. markets, mail order and the internet, edged down. Things are still much better than last year though. Retail sales grew 4.5%y/y in value terms and 1.7%y/y in volume terms. The future on the high street is bleak!

Ireland goes back into recession. The Irish economy is struggling under the weight of austerity. It is also being held back by the overhang of the financial crisis and the taint of having been bailed out. This is now showing up in its growth figures. In Q4 2011 Gross National Product (GNP) fell 2.2%q/q, after a drop of almost 2%q/q in the previous quarter. After two consecutive quarters of contraction, Ireland has officially re-entered recession.

US housing sector is still in the doldrums. The number of new homes started in the US in February was down 1.1% on the previous month. There has been a very slight improvement in the trend since the autumn, but new building is still at only half of its long run average. Housing sales are also struggling with monthly declines recorded in both January and February. The housing market has long been a drag on the post-crisis recovery in the US and this seems unlikely to change just yet. House prices are down, down and down!

Eurozone private sector activity points towards a recession. The composite Purchasing Managers Index (PMI), a key survey of activity across manufacturers and service providers, fell again in March. The index fell from 49.3 in February to 48.7 in March, remaining firmly in the sub-50 contraction territory. Both the manufacturing and the services sectors were slow and the weakness is apparent across the whole region – even in Germany. These numbers point to a second quarter of contraction, which would qualify as a technical recession. The European Central Bank’s liquidity operations may have stabilised markets, but they now need to deliver a boost to economic growth. The future looks grim! We need a positive strategy with people with skills and experience to drive everyone forward!

China’s struggling manufacturing sector points toward more monetary easing. The flash HSBC manufacturing PMI was disappointing. The March index fell to 48.1 from 49.7 in February which makes it five consecutive months that it’s been below 50. Bank lending is lower than expected and the property sector is struggling under the weight of government efforts to take the heat out of it. With this background more monetary easing from the authorities is probably not too far away. Even China are feeling the squeeze!

The Euro currency will continue to suffer in the hands of Greece, Portugal, Spain, Italy and Ireland who are `all` in `deep` financial difficulty as first stated here in January 2008. Who will leave the euro currency first? What future as the Euro? Watch this space!

What `all` European countries need to understand is about how to operate within financial budgets, please click on the URL below;

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We have another global crisis that needs urgent attention by skilled and experienced people who can do the job right!

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More Economics and Business Inspiration:
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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.

Eurozone recession

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