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Global Economics Weekly Brief - Happy 2014

Global Economics Weekly Brief

Happy 2014!

Happy New Year To All! Last year was the best for the UK economy since 2007. We have every reason to expect better still in 2014. Employment is rising, output is on the up and houses are selling. Overseas, the US is edging towards a budget deal and the euro zone dog barely barked in 2013. Sure, there are still clouds.



UK growth relies too much on consumers spending more even as real wages fall. Unemployment is still very high. The euro zone’s issues/problems have merely been sleeping. We do not know how the rest of the world will react to tightening US monetary policy. And the long-run squeeze on many households’ incomes will not relent. But for the first time in a long time we enter a new year with genuine cause for optimism.

Big fall in UK unemployment. The labour market surprised on the upside in 2013 and the three months to October were particularly impressive. Employment rose by 250k, the biggest quarterly increase for more than three years. Many sectors reported growth, but construction and real estate were especially strong. The unemployment rate fell from 7.7% to 7.4%. In the November Inflation Report, the Monetary Policy Committee (MPC) brought forward its forecast of when unemployment would reach the 7% threshold to Q1 2015. If recent trends continue, we'll get there by mid-2014. But the MPC has been clear that 7% is not a trigger for interest rate rises and much will depend on the outlook for inflation.

UK inflation falls again. CPI inflation fell to a four-year low of 2.1% in November. The largest downward contribution came from food and drink prices. Inflation is likely to rise in 2014, as pre-announced price hikes for utilities come into effect. But the decline in November, which followed a bigger-than-expected decline in October, gives the MPC some breathing space on rates. Forward guidance offers neither hard and fast rules nor concrete certainty, but the Bank of England (BoE) wants us to believe that it will do all it can to support the recovery yet not so much that it risks inflation taking-off. We think that means the Committee will be happy to leave Bank Rate at 0.5% for some time, just as long as inflation continues to behave. Remember, full time employment is only 47% of total people employed! There are far too many part-time jobs and jobs with zero hours contracts!

Bubble, bubble? One reason for the extra jobs in construction and real estate is the strength of the housing market. BoE data for November showed the highest number of mortgage approvals since January 2008. Nationwide reported prices rose 1.4% m/m and 8.4% y/y in December. The government housing scheme is bubbling over! The price of housing is rising rapidly, therefore, will it be another boom and bust scheme?

UK manufacturing rings out the old on a firm footing. The Purchasing Managers' Index (PMI) for manufacturing came in at 57.3 for December - down from 58.1 in November, but still signalling strong growth. Demand increased at home and abroad, with a solid rise in sales of capital and intermediate goods to destinations such as Brazil, China, Ireland, Russia and the USA. All told, manufacturing is likely to have grown by about 1% q/q in real terms in the final three months of 2013. More manufacturing and exports are needed to be successful!

(Most!) manufacturing rounds off the year on a high note. The UK was not alone in reporting a decent manufacturing PMI. Germany, Japan and the US all turned in strong performances. China's PMI continues to point to growth, albeit lacklustre at 50.5. India is a similar story. But France’s reading fell to a very low 47. So although global manufacturing is pushing ahead on an improving global economy, not everyone is on board. China and India`s labour force are still paid pittance!

US quantitative easing - just a touch off the back and sides. Just before Christmas, the US Federal Reserve announced it would 'taper' its bond purchase programme. But just a little to begin with. Monthly asset purchases are being reduced from $85bn to $75bn. And there was still a stocking-filler in the form of a commitment not to raise the benchmark interest rate until unemployment has fallen "well past" 6.5%. It’s currently 7.0%. This was the Fed's way of saying that tapering does not mean interest rate hikes will follow. Financial markets took the announcement in their stride. With the bond purchase programme likely to be reduced steadily this year, let's hope each announcement is as well received as the first. The debt is $17 trillion and still growing rapidly!

China’s local government debt is a hard habit to break. Lost in the wilderness of the week between Christmas and New Year, a long-awaited audit of China's local government debt was released. Local governments sit at the heart of the debt concerns that have surrounded China for years. They borrowed heavily after the financial crisis to fund a gargantuan real estate and infrastructure spending binge. The audit revealed local government debt rose 70% between the end of 2010 and June 2013 and now stands at around £1.8 trillion, around 30% of China's GDP and bigger than the UK’s annual output. Efforts are already underway to cool credit growth but these will have to be sustained for many more months and years. An age of austerity beckons for China's local governments. Will the bubble burst and China roll back the years?

* Europe as a very serious issue with unemployment especially with the youth in `every` country!

European Youth Unemployment = 24% and rising rapidly

UK Youth Unemployment = 20% and rising rapidly

400,000 Graduates came on to the market last year in Europe

960,000 = Under 25`s are unemployed in the UK

Only one in ten school leaves takes up an apprenticeship in the UK

European Youth Unemployment to rise by another 10% + over the next 10 years

Watch 2014 globally very closely!
Global Economic Outlook for 2013 revealed - United Nations ...
www.un.org/en/development/desa/news/policy/wesp2013.html

* `10-Step Double-Dip Recession Survival Guide` - click on the connection below for comprehensive information.
http://newsusa.myfeedportal.com/i/double-dip-recession-survival-guide


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

http://www.cavendish-mr.org.uk

http://www.colinthompson.org.uk

Global Economics Weekly Brief - Happy 2014

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Comments on this item:

Allen
21-12-2016 11:20:55
Some say new year is just another year. I say it’s another chance to improve, approve and disapprove in our life. Happy new moments of a New Year! New Year Messages
 
lzm
22-12-2016 14:28:46

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