Deficits, debt in The Monday Briefing
Laser-like focus on costs amid Brexit turmoil
The latest Deloitte survey of UK Chief Financial Officers released today shows that uncertainty over Brexit is driving a marked shift towards defensive strategies among British businesses. With the UK’s growth prospects heavily dependent on the so far uncertain nature of its exit from the EU, corporates are cutting back on capital expenditure and hiring. Cost reduction is the top priority for CFOs who are placing a greater emphasis on it now than at any time in the last nine years.
Is there a borrowing bubble?
A boom in low quality mortgage lending in America triggered the Global Financial Crisis. It was a crisis of indebtedness which, courtesy of low interest rates, quantitative easing, government spending and bank bailouts, was resolved by the accumulation of even more debt.
Who made money in 2018?
Last year was a tough one for investors, with global equity markets falling 10% overall. For UK investors most major asset classes – equities, bonds and residential property – either fell in value or saw only small gains.
Recessions always start out as downturns
Slowing growth in Europe and emerging markets and October’s equity sell off have got economists pondering when the next recession might strike.
Downs and ups in equity investing
It ended on a high note last week, but overall October was a rotten month for equities. The world equity market has just had its worst month since 2012, with the benchmark MSCI world index down 7% in October. This fall has more than reversed earlier gains, leaving the global index down 3% so far this year.
Austerity may be dead, but what about government debt?
The financial crisis, recession and a slow recovery played havoc with the UK’s public finances, leaving the government with the largest ever peacetime budget deficit.
What happened over the summer?
The summer months tend to be pretty thin for media coverage of economics and finance. Like the rest of us, journalists take their holidays in July and August. Yet economics is no respecter of holidays and events and data have continued to pile up.
Turkish lessons
Emerging market economies have been the main losers from US protectionism and higher US interest rates.
Capital has flooded out of emerging economies to the US to benefit from rising interest rates. This has meant less liquidity and has sent some emerging economy currencies through the floor. Emerging market governments or businesses which borrowed in dollars, and many have, are having to cope with rising financing costs and a heavier local currency debt burden.
Italian lessons
A week ago, we seemed to be on the verge of a second euro crisis with a populist mood threatening to sweep Italy out of the single currency. By the end of the week a coalition government was in place, the markets had cheered up and the newspapers were worrying about other things.
300 years of public spending
The changing size of the state tells the story of modern nations and the ideas that shape them.
Until the late nineteenth century the civilian state scarcely existed. In 1692, when comprehensive records for what was to become the UK started, civil spending by government came to a modern equivalent of around £90 million. A country that was about to acquire a vast empire was governed with a budget equivalent to that of today’s Food Standards Agency.