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Fiscal Squeeze and Fiscal Cliff - Economics Weekly

Fiscal Squeeze and Financial Cliff

The Global Economics Weekly Brief

We will stay the course! The fiscal squeeze will continue! That was the message from George Osborne in his Autumn Statement last week. But for the second year in a row, the Chancellor had to extend the date when he expects to eliminate the budget deficit. Even then, it depends on rather optimistic economic forecasts.

The data last week suggest the sunny uplands look less within touching-reach and more like small hillocks on the horizon. So small they could be a mirage. In contrast, the US is in better shape, despite Hurricane Sandy and the looming fiscal cliff, while China is looking set for a bit of a rebound in growth. The UK outlook? A chilly winter expected. The UK will need another 10 years + before growth appears at a level that is respectable!

Special Link (USA) - Fiscal Cliff Countdown - MarketWatch.com

More of the same from the Chancellor
. The Autumn Statement kicked off with an update on the economic outlook from the independent Office for Budget Responsibility (OBR). It didn’t make good listening. A contraction of 0.1% in 2012 is now forecast, compared with expected growth of 0.8% back in March. Next year received similar treatment, with growth revised down from 2% to 1.2%. The OBR pinned the source of the outlook on external factors, with developments in the Eurozone mainly to blame. The Chancellor did manage to rearrange a few things to give the economy a £5bn infrastructure spending boost, paid for by further public sector savings. But even the OBR expects its impact on growth to be modest. The future is a very big challenge!

No early Christmas gifts from the Monetary Policy Committee (MPC). Not even a gloomier economic outlook from the OBR could tempt the Bank of England to provide some early Christmas cheer for the UK economy. The MPC left the Bank rate on hold at 0.5% and the amount of quantitative easing (QE) unchanged at £375bn. But this wasn't a surprise. For now the MPC is focused on the Funding for Lending Scheme, hoping it to be the catalyst that sparks some life into the economy. Manufacturing still in decline, construction still in decline, traditional printing in decline, what a challenging time for all!

Hard going for UK manufacturers and service providers in Q4. Industrial output fell 3.0%y/y in October. Though a portion of this can be put down to North Sea production volatility, the 2.1%y/y decline in manufacturing output is of more concern. And it may not be the end of the bad news. Although November's manufacturing Purchasing Managers' Index (PMI) rose to 49.1, from 47.3 in October, it continues to suggest a contraction in activity. The services PMI fell to 50.2 in November from an already depressed 50.6 reading in October, making it a disappointing week for UK economic data. Indeed, there is no doubt that the economy has struggled to maintain traction coming out of Q3. The new year will be a `big challenge`!

UK trade deficit widens. With a tough environment for UK manufacturers, October’s trade data was unsurprisingly disappointing. The UK imported £3.6bn worth of goods and services more than it was able to export in October, larger than September’s £2.5bn shortfall. Export volumes have fallen for three consecutive months and are down 6% compared to a year ago. This data pours cold water on previously encouraging signs from UK trade in the Q3 GDP figures. What will 2013 bring!

The European Central Bank (ECB) holds rates steady. But the decision was not unanimous as an interest rate cut from the current 0.75% level was discussed. It was unsurprising given that the outlook for growth remains hugely challenging, just like the UK. The ECB expects GDP growth to be between -0.9% and 0.3% for 2013. No wonder unemployment rose to another euro-era high of 11.7% in November. President Draghi also prompted European governments to progress with the implementation of a banking union to restore confidence in the euro, stabilise financial markets and stimulate growth. Massive unemployment in the Eurozone and more to come in 2013!

US economy holding up as it approaches the fiscal cliff. The US surprised with another decent, but not fantastic, labour market report. Non-farm employment rose by 146,000 in November, very close to the average monthly reading for the year with a negative impact from Hurricane Sandy not materialising. The unemployment rate fell to a four-year low of 7.7%. However, this had more to do with people leaving the labour force than job creation. Meanwhile, the PMI equivalent for the US showed a mixed picture. Manufacturing fell below the 50-mark to the lowest reading since July 2009. Yet services delivered a decent reading of 54.7 as new business rose sharply. More unemployment forecasted for 2013!

China’s economy is on the mend. Industrial production rose 10.1%y/y in November, the highest growth rate since March. Retail sales rose 14.6%y/y and a pick-up in infrastructure spending and property activity is helping to keep investment growth robust. China’s two and a half year slowdown looks to be ending just as the new leaders take power. A big challenge in 2013 for growth, if any!


More Economics and Business Inspiration:
`Accelerate with Impact` -
by Colin Thompson ISBN: 978-1-84549-289-2

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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.

Read more newly added articles, which you can add to, on NewsUSA-MyFeedPortal: http://newsusa.myfeedportal.com/i/libor-scandal <--- The Largest Scandal The World has Ever Seen - The LIBOR Scandal.

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Fiscal Squeeze and Fiscal Cliff !

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