UK: Deloitte Monday Briefing: 2013 Outlook

Last Updated: 15 January 2013
Article by Ian Stewart

Most Read Contributor in UK, August 2017

2012 was a disappointing year for the global economy. The UK and the Euro Area fell back into recession and global activity was unexpectedly weak.

Policymakers responded to the slowdown with a wave of measures in an attempt to bolster growth. The US and UK undertook further rounds of Quantitative Easing and Japan and China loosened monetary policy. The euro area authorities pumped money into the region's banks and announced they stood ready to buy, without limit, the bonds of at risk governments. And in a historic change the US Federal Reserve announced last month that it will keep interest rates at close to zero until unemployment falls below 6.5%.

In recent weeks the temporary fix to America's debt crisis, a huge programme of public spending by the incoming Japanese government and an easing of the Basel III rules for bank capital have added to the more positive mood.

All of this stimulus has certainly buoyed financial markets. US equities have risen to the highest level in more than five years. Bank shares in the euro area have risen by over 60% in the last six months; Greek government bonds rose in value by 274% over the same period. The US VIX index, a key measure of risk aversion, is at the lowest level in more than five years.

Investors believe the good times have further to run. Money continues to pour money into equities and 90% of analysts polled by Reuters recently expect equities to rise in the next year.

The reduction in perceptions of risk in the euro area is particularly pronounced. Last week the President of the European Commission, Jose Manuel Barroso, went as far as to declare that the "perception of risk in the eurozone has disappeared".

Business and consumer confidence also seems to be heading up. Our own CFO Survey shows that the Chief Financial Officers of major UK corporates enter 2013 in a far more optimistic mood than they did in 2012. The British Chambers of Commerce reported last week that confidence among smaller UK businesses is at a five year high. And the Ifo German business climate index, the most closely-watched gauge of business confidence in Europe, rose for a second consecutive month in December.

This improvement isn't only due to policy easing by governments and central banks. While 2012 will be remembered was a tough year for the global economy some things went right. Global inflation fell, supporting hard pressed households and supporting consumer spending. A much-feared 'hard-landing' in emerging markets was averted. Despite a continuing euro area recession, the region's peripheral economies made progress in cutting their budget deficits, reducing wage costs and bolstering exports. In the UK the labour market remained strong and lending conditions improved.

So what do economists expect for 2013?

The general view, though one not held with great conviction, is that the worst of the euro crisis is past and that the US will, somehow, come up with a fix to its debt problems.

Against this backdrop US growth is expected to post growth around the 2.0% mark for the fourth consecutive year – a solid but, in US terms, distinctly subpar growth rate. Economists think the euro area economy will stagnate in 2013, with weak growth in the north offset by the continued shrinkage of the Italian, Spanish, Greek and Portuguese economies. The UK is expected to grow by a lacklustre 1.0%, less than half what was thought to be the UK's trend rate of growth.

Once again, emerging markets provide the bright spot. Economists think growth in China, India, Brazil and many other emerging markets will reaccelerate in 2013 after last year's slowdown.

Optimism about the outlook is tempered by a realisation that plenty of things could go wrong. In the UK perceptions of financial and economic uncertainty among major corporates remain at high levels and this is acting as a break on business spending. Financial markets seem almost euphoric, but economists' keep cutting their forecasts for growth in the industrialised world.

The hope is that politicians will sort out the debt problems of the euro area and the US and, that, as confidence builds, corporates in the US and Europe will start to hire and invest.

Two indicators will tell whether things really are improving. Upgrades to economists' growth forecasts would signal a revival in confidence about growth. And a shift to more expansionary strategies on the part of corporates surveyed in the Deloitte CFO Survey would point to a much needed rise in business activity.


UK's FTSE 100 ended the week up 0.5%, following better-than-expected Chinese economic data and announcement of a Japanese stimulus package.

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


  • The US government is said to be considering printing a $1tn 'commemorative' platinum coin to deposit in its own account at the Federal Reserve, to enable it to meet spending plans in the event that Congress refuses to increase the national 'debt-ceiling' – platinum cliff
  • Chinese exports rose by a larger-than-expected annual rate of 14% in December, driven by strong exports of consumer goods to the United States – China
  • The Japanese government approved a new stimulus package worth more than Y10.3tn (£72bn), aimed at creating 600,000 jobs, improving infrastructure and adding 2% to Japan's real economic growth – stimulus
  • Greece's unemployment rate rose to 26.8%, the highest figure ever recorded in the European Union – unemployment
  • The average yield on US junk bonds fell below 6% for the first time – search for returns
  • The Spanish Treasury said that it aims to sell a record €121.3bn of government bonds in 2013, 7.6% more than in 2012, including €23bn for the country's semi-autonomous regions – Spain
  • The Chinese Academy of Sciences predicted that the Chinese economy will be bigger than that of the United States by 2019 and the country's "international status" would surpass the US by 2049 – China
  • Japanese sales of cars, trucks and buses rose by 26.1% in 2012, with the auto industry recovering from the 2011 tsunami, according to figures from the Japan Automobile Dealers Association – auto boom
  • UK sales of electric cars almost doubled in the first 9 months of 2012, outstripping growth in the wider auto market – electric auto boom
  • A man in Greater Manchester has been charged with the theft of man hole covers in Stockport – where an estimated £250,000 worth of manhole covers have been stolen in just 6-months – commodity prices
  • Home shopping retailer Shop Direct announced a 5% increase in sales for the 6 weeks to 29th December, driven by strong growth in mobile transactions – smartphone revolution
  • The UK goods trade deficit narrowed to £9.2bn in November, from £9.5bn in October, partly driven by an 8.9% rise in exports to the EU – trade deficit
  • UK sales for Dominos Pizza rose 5% in the 14 weeks to 30th December, with customers ordering takeaways rather than brave wet weather – at home dining
  • English Heritage announced that it will not consider new submissions for commemorative blue plaques in London due to funding cuts – austerity Britain
  • European oil demand, already at its lowest in 20 years, is forecast to fall further in 2013 due to weak economic outlook and increasing energy efficiency, according to the International Energy Agency – oil
  • German carmaker BMW reported record annual sales figures for 2012, with group-wide sales rising 11% year-on-year – corporate success
  • Sales of tobacco-free electronic cigarettes rose to between $400m and $500m in 2012 according to Wells Fargo – e-cigs
  • A new Russian law means that beer is no longer classified as a food item but instead as alcohol, preventing retail sales from outlets such as street kiosks and petrol stations and between 11pm and 8am – draught legislation



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