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UK Productivity Puzzle - Economics Weekly

UK Productivity Puzzle

Global Economics Weekly Brief

The UK’s “productivity puzzle” isn’t getting any easier to solve. It more of another riddle to solve! GDP fell in the final three months of 2012 but employment continued to rise, which will have led to another decline in output per worker.

Given that productivity is a key determinant of future prosperity, the hope is that it will bounce back as and when demand recovers. The worry is that the financial crisis has had a more lasting effect on productivity. How many companies are producing finished stock for A HOPEFULL SALE?

UK economy contracts in last three months of 2012. The news that gross domestic product (GDP) fell by 0.3% q/q in Q4 2012 was greeted with predictable headlines that the UK had entered a triple-dip recession. But before you can fall back into recession, surely you have to have come out of one first? The UK economy posted zero growth for 2012 as a whole and GDP in Q4 was still well below its 2008 peak. The underlying truth is that the UK economy is bumping along the bottom, neither growing nor shrinking. The UK is still in recession! When will it pull out of recession?

UK labour market goes from strength to strength. This is a big question, where are these people employed? The UK unemployment rate fell again in November, to 7.7%. This is the lowest rate since April 2011. The good news kept on coming with employment numbers showing more than half a million people in employment than a year before. The strongest sectors for employment were administrative & support services and professional scientific & technical services. Construction, however, saw a 65k decline in jobs in the 12 months to November, as the sector's woes continued. One aspect of the labour market release continues to disappoint; pay growth is still failing to keep up with inflation, which helps explain last week’s weak retail sales report. Other sectors in decline, traditional printing, shop retail, gym memberships, newspapers and a few others!

Public borrowing continues to rise rapidly. The Government borrowed £15.4bn in December to plug the gap between taxes and spending. Over the current fiscal year, borrowing is up 7% from 2011-12 (excluding the Royal Mail pension fund transfer). With deficit reduction proving difficult and the economy in the doldrums the IMF has suggested that it is time to “take stock”. The Fund has argued that current economic conditions amplify the impact of spending cuts and tax rises. Their advice is to go “slow and steady” on austerity. Will we see a Plan B from the Chancellor at the Budget Statement on 20 March? Why are civil servants spending money they have not got?

The name’s Bond, Corporate Bond. UK corporate bond issuance hit an all-time high last year, with net issuance of £19.5bn in 2012. These figures underline the importance of bond markets as a source of finance, particularly for large UK companies. A fall in the cost of borrowing has made issuance more attractive. As we argue in a recent paper, this trend undermines the received wisdom that companies are firmly focused on paying down debt. Debt is high and profit levels are dropping rapidly!

David Cameron speaks on Europe. In a long-awaited speech, the Prime Minister announced that the Conservative Party Manifesto for the 2015 election will seek a mandate to negotiate a 'new settlement' with the European Union (EU). This new settlement would then be put to a referendum by 2017 with a simple in/out question. Mr Cameron signalled a preference to remain inside the EU with a new settlement that has competitiveness and the single market at its core. What will this speech accomplish?

The Eurozone is still contracting, just not as fast. Eurozone output fell again in January but at a slower rate, according to a leading business survey of manufacturing and service sector companies. The Purchasing Managers' Index rose to a ten-month high of 48.2 in January from 47.2 in December (anything below the 50-mark indicates contraction). In another survey, investor confidence in Germany surged to a two-and-a-half year high. This chimes with European Central Bank President Draghi’s remark last week that “the darkest clouds over the euro [have] subsided”. The Eurozone continues to be in big trouble with high unemployment continuing?

Japan adopts a 2% inflation target – but how will they achieve it? After intense pressure from the country's new government, the Bank of Japan (BoJ) has announced a 2% inflation target. Such a target is old news over here in the UK. But in Japan, it could be a watershed decision. Japan has not had 2% inflation on a sustained basis for more than 20 years. Indeed, the latest data show the economy is suffering from deflation. Meeting the target is going to require a bold monetary loosening. To that end, the BoJ announced a programme to buy government bonds in potentially unlimited quantities. But even that might not be enough. We think it may need to adopt even more aggressive policies, such as deficit financing. This would involve printing money to give to the government, or households, to spend. This may seem extreme, and for now remains simply a theoretical option, but Japan has moved closer to it. Japan are in continuous trouble since 1990!

USA borrowing continues to climb daily at present $16 trillion plus with more unemployment on its way!

Plus, the `Global Risks 2013 Report - Risk Cases and Resilience` - click here:

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

What do you think about this?


More Economics and Business Inspiration:
`Accelerate with Impact` -
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.

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.

Colin Thompson
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Main T: + 44 (0) 121 244 1802

The Central Banker Problems!

email: colin@cavendish-mr.org.uk

Skype: colin.thompson384



UK Productivity Puzzle!

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