The Monday Briefing
A succinct and eclectic weekly take on economics and finance from Ian Stewart, Deloitte's Chief Economist in the UK
Deloitte CFO Survey: The dash for cash
Today’s Briefing summarises the findings of the latest Deloitte Survey of Chief Financial Officers which was released overnight. The full report is available at: https://www2.deloitte.com/uk/en/pages/finance/articles/deloitte-cfo-survey.html
The survey gauges sentiment among the UK’s largest businesses in the wake of Parliament’s rejection of Mrs May’s Brexit deal. The survey ran between 26 March and 7 April, opening just after the announcement of the first delay in Brexit and covering a period that saw the failure of the House of Commons to agree a new plan and the start of Brexit talks between the government and the Labour Party.
Despite such turbulence the latest survey shows that confidence and risk appetite among CFOs are little changed. CFOs seem to have priced in a tougher environment earlier, at the start of the year, and the latest round of Brexit uncertainties has not materially changed that picture. The fact that balance sheets are being readied for turbulence fits with findings by the Bank of England’s agents which show that around 80% of companies judge themselves ready for a no-deal, no transition Brexit.
Who’s afraid of the yield curve?
There’s no doubt that growth in the West is slowing. The question is whether the slowdown could turn into a recession. Last month the US yield curve, a key gauge of future US growth, temporarily dipped into recessionary territory for the first time in ten years.
Navigating the China slowdown
China’s economic transformation in the last four decades is one of the great economic success stories of modern history. Through liberalisation and opening up to trade China was able to grow by 10% a year between 1980 and 2018. Its economy expanded by a factor of 30 and it easily dodged recession during the global financial crisis. There is no precedent in history for an economy of this size growing at such a rate for so long.
Globalisation déjà vu
This morning we are launching our quarterly “Global Economy in Charts” report, a 20-page slide deck, available here. Created by my colleague Debo, the report examines the big global macro trends and challenges. Charts can be cut and pasted into your own reports. Do drop Debo a line at dde@deloitte.co.uk with ideas and comments.
Global Economy in Charts
Brexit latest and thoughts on a slower growth world
With Brexit uncertainty undimmed we start this week’s Briefing with a short recap on the economics of leaving the EU.
The consensus among economists is that the UK will grow by 1.3% this year and 1.5% next year. With activity slowing across the world, particularly in the euro area, and the UK scheduled to leave the EU, growth at these rates looks pretty respectable. Given the uncertainties facing the UK it’s perhaps surprising that its economy is expected to outpace Italy’s or Germany’s this year.
This fairly cheery outlook for the UK comes with a major caveat. Most forecasts are predicated on the UK leaving the EU in an orderly, managed fashion. In the event of an abrupt departure without a deal UK growth forecasts would almost certainly plummet. Leaving the EU without a deal would, according to the OECD and the National Institute of Economic and Social Research, leave the UK growing by around 0.4% this year and next.
Alarm bells ring for the euro area
We were taken by surprise last week by the scale of the downgrade to the OECD’s latest forecast for German growth. The OECD now thinks that the German economy will grow by just 0.7% in 2019. This is a big reversal of fortune; a year ago the thinking among economists was that Germany would grow by around 2.0%. At 0.7% German growth would be slower than the euro area as a whole (1.0%) and even the Brexit-embattled UK (0.8%).
How to spot a bubble
Last October the International Monetary Fund warned of the risk of another global financial crisis. The Fund sees a 60% rise in global indebtedness in the last ten years and the exposure of banks to illiquid assets as major risks.
The UK consumer
2018 was a tough year for British retailers. According to the Centre for Retail Research, nearly 2,600 stores closed, the highest number since 2012. Recent high-profile casualties included HMV, Patisserie Valerie and Oddbins. Along with the structural shift to online shopping, high-street retailers are under pressure from a slowdown in consumer spending growth.
Contingency thinking for the next downturn
After a dreadful end to the year global equity markets got off to a flying start in 2019. The US S&P 500 index is up by 10% so far this year, having fallen by 16% in the first three weeks of December.
How to reboot growth
The financial crisis of 2008-09 pitched Western economies on to a lower growth path. In recent years growth across the industrialised world has run well below the rates seen in the years before the financial crisis.