UK: Deloitte Monday Briefing: Print Me A Bond Car

The Monday Briefing, written by Ian Stewart, Deloitte's Chief Economist in the UK, gives a personal view on topical financial and economic issues.

• We are often asked which parts of Western economies are going to drive the recovery.
• With governments desperately seeking to cut borrowing the private sector will have to provide most of the impetus for the recovery.
• But the real conundrum is about which parts of the private sector and which industries and processes will drive growth. History suggests a good deal of future activity will come from sources of which we currently have little, if any, awareness.
• Innovation and creative destruction continually reshape economies. No one can perfectly anticipate the feel of such change, not even the creators of new technologies. Tim Berners Lee could surely not have guessed at the transformational effects of the World Wide Web when he invented it 20 years ago.
• Time and again markets find new and unforeseen uses for technologies, creating more pervasive economic effects than were envisaged by their inventors.
• Since the Industrial Revolution the world has been transformed by a series of technologies and processes – from electricity and mass production to the jet engine and the microchip. These are General Purpose Technologies, ones which can be widely deployed, affecting both household life and the structure of business.
• A technology which has a good claim to be the world's next General Purpose Technology is 3D printing. Also known as additive manufacturing (AM), it involves using a 3D computer design of a product to create, layer-upon-layer, an object. In the same way that photocopying transformed the reproduction of two dimensional images AM printing offers the prospect of a revolution in our ability to reproduce three dimensional objects.
• AM uses a range of materials including plastics, metals or glass and, like an inkjet printer that goes back over and over the same page, it builds layer upon layer of materials to make a product. Additive manufacturing can be contrasted with traditional subtractive manufacturing, such as machining and casting, which involve taking material away from a work piece.
• AM has been around for about 30 years, but has only recently become sufficiently cheap and fast to be of wide-spread commercial value.  The first, brief, reference to 3D printing in the Financial Times was in 2006, but it was not until 2010 that the FT covered the subject in any detail. It is indicative of the growing interest in the subject that Google searches for the term "3D printing" have risen five fold in the last 2 years.
• AM has been used in a range of areas, from the production of auto and aerospace components to creating dental implants and customised hearing aids. [spoiler alert] The "vintage" Aston Martin which meets a sticky end in the latest James Bond film was a scale model created using AM.
• Importantly, the layering of materials through AM allows a complexity and precision that cannot be produced by other means and allows for the re-engineering of existing products. One piece of equipment on the F-18 fighter aircraft which previously required 16 components is now being made as a single unit using AM.
• Yet along with such hi-tech applications AM has attracted a growing band of enthusiasts designing and making products themselves. One New York company, Shapeways, allows home inventors to offer up designs on line which are realised using AM and if accepted, put into mass production.
• As costs fall further AM is likely to become an increasingly ubiquitous technology. In doing so it has the potential to be as disruptive to existing businesses and processes as the internet. So how could it change the world?
• AM offers the prospect of less centralised, tailored, cheaper production. In time it may mean that production moves closer to the consumer.
• Enthusiasts can already buy an AM machine for under $2000 which enables them to produce plastic toys at home. Companies will increasingly be able to develop complex products themselves rather than contracting them out to specialists. On-demand production reduces the need for mass storage and inventories of products and spares.
• AM can make production cheaper and easier and, in so doing, increase the value of ideas and intellectual property relative to capital and labour. Intriguingly this has the potential to benefit those economies – like the US and UK for example – that have specialism's in creative services, engineering and IP.
• As with all new technologies, there are also risks. AM makes counterfeiting and intellectual property far easier. Some observers worry that the production of sophisticated weaponry will become easier and cheaper, with implications for global security and terrorism. One US company last month shelved plans to share plans for a 3D printable gun on-line.
• Like the printing press or the internet, AM is a democratic technology. It is likely to reduce economies of scale and barriers to entry in the manufacturing sector. This, in turn, will provide opportunities for inventors, new entrants and smaller firms.
• 3D printing has the hallmarks of a transformational technology. As the inventor Sir James Dyson said last month, "I think it will, eventually, completely transform the way things are made".

MARKETS & NEWS

UK's FTSE 100 ended the week -2.8% on the back of poor European economic data and worries over the US "fiscal cliff".

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

KEY THEMES

• The eurozone economy returned to recession for the first time in 3 years, following a 0.1% contraction in Q3 2012 – slowdown
• People in Spain, Greece, Italy and Portugal held a 24-hour "European day of action" against austerity measures on Wednesday 14th November – euro crisis politics
• Christine Lagarde, the Managing Director of the International Monetary Fund, said "[i]t is not over until the fat lady sings" when asked about the possibility of reaching an agreement on Greece's delayed €31.3bn aid payment – euro crisis politics
• European Central Bank Governing Council member Luc Coene said "Spain urgently needs to seek emergency aid" in a debate at the University of Ghent – Spain
• British Petroleum received the biggest criminal penalty in US history, as part of a $4.5bn settlement, to be paid over five years, related to the 2010 Deepwater Horizon disaster – BP
• Japanese GDP shrank by a quarterly rate of -0.9% in Q3 2012 – Japan
• Credit ratings agency Moody's put the UK economy on "negative watch" and warned that the country could lose its triple-A credit rating if it enters a "triple-dip" recession – slowdown
• UK consumer price inflation rose by an annual rate of 2.7% in October, a five-month high, driven by rising university fees and food prices – inflation
• UK government officials are preparing "worst case" plans for a further 20% cut in departmental spending after the next election, according to The Financial Times – austerity
• The RICS survey of UK house prices showed that the house price balance was -7% in October from September, the strongest reading in almost 3 years – house prices
• The International Energy Agency predicted that the US will overtake Saudi Arabia and Russia to become the world's largest global oil producer by the second half of this decade, driven by shale gas production – shale revolution
• Soft drinks manufacturers AG Barr and Britvic agreed terms of a £1.4bn merger, creating one of Europe's biggest soft drinks companies, to be called Barr Britvic Soft Drinks – M&A
• Lancashire County Council is investing £100,000 into local businesses through peer-to-peer lender Funding Circle, becoming the first local authority to invest taxpayers' money directly into an online lender – peer-to-peer lending
• Mobile phones company Vodafone wrote down the value of its operations in Spain and Italy by £5.95bn – eurozone exposure
• Supermarket group Sainsbury's announced profits of £405m in the six-months to 29th September, a rise of 2.5% on the period last year, driven by strong online sales and convenience store growth – Sainsbury's
• The Japanese government announced that it is to tax online sales of electronic books, music and other content purchased from overseas vendors from April 2014, as it already does so for content purchased from domestic businesses – tax
• US retailer Costco is offering 120 gallon-size cans of food for $1,499.99 – representing a year's supply of food – to cater for demand for emergency rations and disaster supplies – disaster economics
• The German army spent €20m on a facility to produce its own army personal care products, but 90% of the products end up being thrown away according to the German Federal Court of Auditors – balms race

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