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The global economy enters 2018 with good momentum. Expectations for growth this year are rising in many countries, equities are hitting new highs and business confidence is buoyant.
The worries around Brexit, the US elections, risks in the Chinese economy and populism in Europe that loomed large 12-18 months ago have eased. Our “worry index”, which tracks references to terms such as risk, uncertainty and instability in the major business papers has fallen by 30% from its 2016 peak. Financial measures of risk have declined, so much so that some see markets as overly complacent.
Last week’s surge in the oil price, to a three year high of $70, fits with the idea of gathering global demand. A pickup in global trade has pushed up the benchmark index of sea freight rates by 50% in the space of a year.
This looks like that rare thing: a synchronised global recovery, across developed and emerging countries, that is delivering lower unemployment. In much of the rich world, including the US, Germany, Japan, and the UK, jobless rates are close to, or lower, than at any time in at least 25 years.
The turnaround has been particularly pronounced in two regions which have suffered persistently weak growth in recent years. Japan and the euro area saw unexpectedly strong recoveries in 2017. Both economies should post rates of growth this year at or around the levels seen last year. For the euro area 2017 and 2018 seem likely to be the best two year period for growth in 11 years.
America’s recovery has unfolded in line with earlier expectations, confounding the fears of Trump sceptics and dashing hopes of an immediate ‘Trump boost’. The upswing was already underway at time of the Presidential election in late 2016, and has speeded up since last spring. Buoyant business and consumer confidence and still-easy credit conditions point to a further acceleration in US growth this year. Tax cuts for consumers and business should bolster the growth. The Federal Reserve will continue to lead the world in tightening monetary policy. Markets are assuming that US interest rates will rose at least a further 75bp this year, taking them to 2.25%.
The latest Deloitte survey of UK Chief Financial Officers, released this morning, shows the CFOs enter 2018 more focussed on controlling costs than at any time in the last eight years. CFOs seem to be reacting to slower UK growth and Brexit uncertainties with a renewed focus on costs.
We are launching our Christmas reading list today. Our ‘top six’ is the product of a lot of reading and some debate in the Economics Team. The list aims to offer a thought-provoking and enjoyable break from the rigours of Christmas. All are available free and online. You can save these articles on your smartphone's or tablet's reading list. To print any use the print icons, where available, on the webpages to ensure the whole article comes out.
It’s official, the UK growth outlook has taken a turn for the worse. By far the biggest news in last week’s budget was the downgrade in the Office of Budget Responsibility’s (OBR) forecast for UK productivity growth over the next four years, from an average of 1.6% to 0.9% a year.
There is no consensus about why UK productivity growth has been so weak in recent years. But with the under-performance running into its sixth year, and other countries struggling with similar problems, the OBR has thrown in the towel and accepted that the days of rapid productivity growth are over.
Spending money just keeps getting easier. Internet shopping, electronic bank transfers, contactless and mobile payments are increasingly popular ways of spending. Last year the number of contactless payments tripled in the UK and on-line shopping rose nearly 20%. Digital versions of traditional central bank currencies are in the ascendant in the West.
The Monday Briefing reached its tenth birthday over the summer. This week’s Briefing offers some thoughts on the lessons we’ve learned and the errors and successes we’ve made along the way.
Perhaps the most obvious lesson is that the economy depends on a stable financial system. In getting this right before the crisis, and emphasising it in the Briefing, I can’t claim great prescience. The devastating effect of the bursting of Japan’s banking and asset bubble in the early 1990s provided me, and others of my generation, with a graphic illustration of the effects of a financial collapse.
A personal view from Ian Stewart, Deloitte's Chief Economist in the UK. Subscribe to & view previous editions at: http://blogs.deloitte.co.uk/mondaybriefing/
The latest Deloitte survey of UK Chief Financial Officers, released this morning, shows a rebound in optimism after the sharp decline in the wake of June's General Election. Perceptions of uncertainty have declined and are running at almost half the levels prevailing after last year’s EU referendum.
In four weeks’ time the Bank of England is likely to raise UK interest rates for the first time in ten years. The Bank’s Governor, Mark Carney, has gone out of his way to signal that a rate rise is on the cards. Financial markets and economists are betting that the Bank’s Monetary Policy Committee will hike by 25 basis points at their 2nd November meeting, taking UK interest rates up to 0.5%.
Other central banks are also edging away from ultra-easy monetary policy, with America leading the way.
The financial crisis seemed to mark a step change towards higher levels of uncertainty and slower growth rates. A less certain world meant less risk taking and fewer big purchases. Companies and households battened down hatches, focusing on reducing their costs and building up savings.
Ten years on from the crisis we have become more accustomed, though not immune, to uncertainty. The cliché is that the only certainty is uncertainty.
Earlier this month I was on a panel with a former banker and an academic in Austria discussing the lessons of the financial crisis.
At one level the crisis was mind-boggingly complex, with obscure, linked financial structures blowing up, spreading risk through the system. At another level it was pretty simple.