UK: Deloitte Monday Briefing: What Happened Over The Summer

Last Updated: 4 September 2012
Article by Ian Stewart

Most Read Contributor in UK, August 2017
  • The summer did not bring any respite to the gloomy economic news. Yet despite this financial markets have become more confident and equities have rallied in recent months. For those who have been away in August here's a short summary of the main economic developments.
  • The pace of world growth has continued to ease. According to the Economist the global economy expanded at its slowest rate in two and a half years in the second quarter of 2012.
  • Confidence about growth next year has waned. In August economists cut their GDP forecasts for growth in 2013 in North America, Europe, Brazil, China and India over the summer.
  • The Purchasing Managers surveys reported a decline in global manufacturing activity, led by weakness in the euro area.
  • Analysts cut their profit forecasts for European corporates. Most expect profits to grow faster in the US next year than in the UK or the euro area.
  • The price of oil rebounded from June's 18 month low, ending August at $113 per barrel. Global food prices rose 10% in July according to the World Bank. The World Bank President described the sharp increases in the prices of soya, wheat and corn as "historic".
  • The US housing market showed signs of life. Housing starts hit a four year high. The Case Shiller index, released last month, reported that US house prices rose 2.3% in June, following a 2.2% increase in May, the fastest two-month rise in more than 10 years. Shares in US house builders rose more than 10% in August.
  • The Euro crisis eased on hopes that the authorities would do whatever it takes to keep the single currency together. Borrowing costs for the Spanish and Italian governments fell from their late July peaks. The euro strengthened against the dollar and shares in euro area banks rallied.
  • Financial risk appetite rose in August. Shares in small companies have done much better than those of larger companies. The VIX volatility index, a popular measure of financial 'fear' in US equity markets, hit a five-year low in the middle of August. The value of lower quality corporate debt rose over the summer.
  • Global equities rose 2% in August. The UK FTSE gained 4.4% and Spanish equities 7.0%. Apple's share price hit $665 on August 20th, making it (in nominal terms) the most valuable company ever.
  • So financial markets have shrugged off poor economic news, pinning their hopes on Central Banks to sort out the euro crisis and re-boot global growth.
  • Events over coming weeks will provide a test of whether such optimism is well founded.
  • The Troika of the EU, the ECB and the IMF will visit Greece and Portugal this week to assess whether their austerity programmes are on track. The Netherlands faces a general election on the 12th September. The Dutch Socialists, who are sceptical about the need for fiscal austerity, seem likely to make gains. On the same day the German Constitutional Court will rule on the legality under German law of the last European bailout plan.
  • Last week's Republican convention suggests that fiscal conservatism will be at the heart of Mitt Romney and Paul Ryan's campaign. Whatever the result of November's Presidential election the US "fiscal cliff" – with steep automatic spending cuts and tax increases scheduled for early 2013 – looms large as a threat to America's recovery.
  • If the financial markets are right better times lie ahead for the global economy. On Friday the Chairman of America's Fed Reserve Bank, Ben Bernanke, hinted that the US may be contemplating a further round of Quantitative Easing to boost growth. The real test is whether the actions of policymakers in Europe and the US will validate the confidence of financial markets.


UK's FTSE 100 ended the week down 1.1%.

Here are some recent news stories that caught our eye as reflecting key economic themes:


  • Greek prime minister Antonis Samaras, promised the Greek public that the recently agreed €11.5bn in austerity cuts would be the last, as "[t]he Greek economy can take no more" – Greece
  • UK credit card lending fell at its sharpest rate for six years in July, according to data from the Bank of England – squeezed consumer
  • US consumer confidence unexpectedly fell in August to its lowest level in nine months according to survey data – consumer confidence
  • German business confidence fell for the fourth month in a row, reaching to a 29-month low, according survey data – slowdown
  • The United Nations warned of a "catastrophic" rise in unemployment, especially amongst the young, if the eurozone were to split – euro crisis
  • India's GDP grew at a better-than-expected quarterly rate of 5.5% in Q2 2012, driven by a rise in construction output – India
  • The Chinese minister in charge of the National Development and Reform said that "the country's economic growth is stabilizing at a slow pace" – China
  • Japan's finance minister Jun Azumi said there is "a real threat" the country will run out of money if a deficit reduction bill is not passed by parliament – Japan
  • Bank of Spain data revealed that Spanish banks lost €1 out of every €20 deposited with them in July, resulting in the worst month for deposit flight from Spain in 15 years – banking stress
  • Spain's north-eastern region of Catalonia said that it "will not accept political conditions" for a €5bn national bailout – euro crisis politics
  • The Irish government successfully raised €1.02bn on the bond market, with yields on benchmark Irish 8-year bonds falling below 6.0% for the first time since September 2010 – Ireland
  • Mario Draghi, President of the European Central Bank, could not attend the annual Jackson Hole meeting of central due to a "heavy workload" – ECB stress
  • Profits for US farmers are forecast to reach their highest-ever level in nominal terms in 2012, according to the US. Department of Agriculture, driven by the high price of drought-affected crops – commodity prices
  • Food firm H.J. Heinz Co. announced that first-quarter earnings are expected to rise 23.5%, boosted by strong sales to emerging markets
  • British-based car-maker Bentley announced it is considering the launch of an armour-plated car range for markets such as Latin America, the Middle East and Russia, where "security is an issue" – emerging markets
  • US printing firm Lexmark announced that it is to stop selling inkjet printers in order to focus on laser printers, software and document management services – digital revolution
  • Sharp, the Japanese electronics firm, had its credit rating downgraded to "junk" status by Moody's, citing "deteriorating market conditions – Sharp
  • Beatles manager Brian Epstein and Graham Chapman of Monty Python will be among those to miss out on a having a commemorative blue plaque in London due to funding cuts to the English Heritage scheme – austerity awards
  • A US farmer in Kentucky has decided to replace the corn in the diets of his 1,400 cows' for low-grade candy, due to the high price of the grain – sweet deal

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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