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Global Economics Weekly Brief

Global Economics Weekly Brief

Let’s start with the good news: the UK economy expanded in Q1 (0.3%), avoiding a triple-dip recession and the US grew at a decent lick despite the effects of the fiscal cliff. It’s still too early to declare that the major economies have returned to decent growth.

But as Churchill said of the Battle of El Alamein, could the first quarter of (2013) have been the end of the beginning? Watch out for the adjusted figures next quarter! What people want globally is `realty` and let's hope the statistics that are produced are correct! * The Global Economy` Report below.

UK economy avoids triple-dip recession! The economy grew by a stronger-than-expected 0.3% q/q in the first three months of this year. A reasonably robust 0.6% q/q rise in services helped offset a gloomy 2.5% q/q fall in construction, a sector in more need than most of some seasonal spring warmth. Output also fell in the manufacturing sector, where companies continue to feel the cool wind from the continent. Nonetheless, the headline figure is more sunny than rainy. The other bellwethers are the Traditional Print industry, advertising, construction that are `all` indicators of the true economic picture and they are all in decline!

Funding for Lending Scheme – bigger, better, broader. The Bank of England and HM Treasury have re-vamped the Funding for Lending Scheme, which aims to support the recovery by boosting lending to households and companies. There are three important changes. First, it has been extended by a year, to the start of 2015. Second, there are additional incentives for lending to small and medium-sized enterprises (SMEs). For example, for every £1 of new lending to SMEs in 2013, banks will have access to £10 of cheap funding. Third, the scheme will now include a broader range of financial institutions (e.g. financial leasing corporations and factoring corporations). These types of funding have not and will not work in the present global challenge and governments continuously `waste`` tax payers money on these schemes!

UK deficit down – just! Public sector borrowing over 2012-13 came in at £120.6bn, a fraction lower than the £120.9bn recorded in 2011-12. Nevertheless, this is clearly far from spectacular progress on deficit reduction. The shortfall between expenditure and receipts is still around 8% of GDP. This has not been helped by a weak economy, with corporation tax revenues down 6.4% over the fiscal year. The IMF Chief Economist, Oliver Blanchard, has said that it might be time for a reassessment of UK fiscal policy. The Chancellor has steadfastly refused to compromise on Plan A – is he for turning? Civil servants need to come into the real world and stop continuously wasting money and become accountable and responsible for their actions!

Consumers drive US acceleration. The US grew at an annualised rate of 2.5% in Q1, up from just 0.4% in Q4. The major boost came from consumer spending (buying goods on borrowed money!). This was fuelled in part by the strength of the labour market, though saving may have taken a hit as consumers looked to offset the payroll tax rise at the start of the year. Government spending was a drag on growth, shrinking by 4.1% q/q, with defence spending particularly weak. The US continues to present a puzzle to those who argue against austerity. Government activity has fallen consistently and substantially since 2009 but US growth, although poor by historic standards, puts Europe firmly in the shade. There's more to Europe's problems than austerity. (NB The US reports its growth rate differently to the UK. On an equivalent basis, the US economy grew by 0.6% q/q.) When will the US pay back the $16+ trillion debt mountain? Borrowing your way out of recession is not the realty we should follow! Read the book `The Rise and Fall of the Roman Empire` and this will show you what the real world will be in the future!

Germany joins the “downturn club”. The Eurozone economy continued to contract in April, according to a leading business survey. The preliminary composite Purchasing Managers’ Index (PMI) was unchanged at 46.5, indicating that output fell again in both the manufacturing and services sectors. The worrying news is that Germany joined peripheral economies and France in the “downturn club”. Germany’s headwinds are a familiar problem in the single currency: declining new orders and weakening confidence. Unlike the US and UK, the Eurozone economy is widely expected to have shrunk in the first three months of 2013, which would be the sixth consecutive quarterly contraction. I wouldn’t bet against it being seven in a row, if the PMI release is anything to go by. The Eurozone countries need to wake up to reality!

A solid start to the year for China and South Korea. On the face of it, China's economy is in good shape. But the growth rate (+7.7% y/y in Q1) has caused a bit of confusion. Activity fell short of expectations and doesn't seem to fit with the rapid pace of bank lending in recent months. The implication is that it is taking more credit to achieve a given level of growth. That cannot continue indefinitely. China's day of reckoning with its debt is drawing nearer; when it does arrive, the economy will inevitably slow. South Korea will also have to get used to a slower pace of growth. Asia's fourth-largest economy grew by 1.5% y/y in Q1, helped by a rebound in investment exports in the first three months of the year. That’s a healthy figure, but subdued compared to recent history. They are all borrowing for growth but who pays in the end!

China Export Growth Collapses as World Recovery Slows - click on the connection below for comprehensive information.

10-Step Double-Dip Recession Survival Guide for Entrepreneurs - click on the connection below for comprehensive information.

Global Economic Crisis

Colin Thompson
DDL: + 44 (0) 121 244 0306

Mobile: 07831 588310

Main T: + 44 (0) 121 244 1802

email: colin@cavendish-mr.org.uk

Skype: colin.thompson384



Global Economics Weekly Brief

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