A personal take on economics from Ian Stewart, Deloitte's Chief Economist in the UK.
- After several years of slow or no growth, activity in the rich nations of the industrialised world is returning. The US and UK recoveries are gathering pace and the euro area is moving out of a two year recession. This year the International Monetary Fund expects growth in advanced economies to almost double to 2.2%, the fastest pace in four years.
- The US and the UK are likely to be the fastest growing G7 nations in 2014, outperforming Brazil, a BRIC nation, this year and next.
- The peripheral European economies, which bore the brunt of the euro debt crisis, are on the mend. Spain, Portugal and Italy are expected to return to growth in 2014 having seen big upgrades to their growth forecasts in the last year. The 0.3% shrinkage expected in the Greece's economy this year is trivial compared with the 25% reduction in GDP seen in the previous five years.
- Iceland, Ireland and Latvia experienced deep financial crises in 2008-10 but are expected to post solid growth this year.
- Western growth has benefited from gradual repair in the financial system and the cheap money policies of central banks. Lower commodity prices and a strengthening of western currencies against emerging market currencies has helped push down inflation and bolstered the spending power of Western consumers. Meanwhile a Congressional agreement to lift the US debt ceiling and Mario Draghi's public commitment to do "whatever it takes" to save the euro have eased two of the West's biggest economic worries.
- Just as the outlook for Western growth has brightened so has the outlook for emerging markets dimmed.
- Growth forecasts for 2014 for the BRIC nations (Brazil, Russia, India and China) and the so-called MINTs (Mexico, Indonesia, Nigeria and Turkey) have fallen in the last year.
- The prospect of a withdrawal of monetary stimulus in the West has led to significant outflows of foreign capital from emerging markets and falls in a number of emerging market currencies. Commodity–rich nations, such as Russia and Brazil, have been hit by falling commodity prices.
- Individual emerging economies face a set of country-specific challenges. India has been hit by concerns about corruption and the health of its banks. China is attempting to engineer a slowdown by steering growth from investment towards consumer spending. Political unrest has affected confidence in Turkey. Russia's prospects have been hit by lower commodity prices and by uncertainties created by Russia's intervention in Crimea.
- As the growth gap between the rich world and the emerging economies narrows world growth will shift somewhat towards the developed world. The IMF expects that the combined trade deficits of the rich nations will turn to surpluses in the coming years as they boost exports and as emerging economies consume more.
- None of this detracts from the powerful, long-term growth story for emerging markets. The IMF forecasts that the emerging economies will post growth of 5.4% in the next five years, more than twice the rate of growth of the rich nations.
- But for now, at least, markets see lower levels of risk and firmer growth in the West. In emerging markets the perception is of greater uncertainty and softer growth prospects. That represents quite a change from the default thinking of the last five years.
MARKETS & NEWS
UK's FTSE 100 fell 2.7% last week on investor concerns over a Chinese slowdown and political tensions in Ukraine.
Here are some recent news stories that caught our eye as reflecting key economic themes:
KEY THEMES
- The US Federal Deposits Insurance Commission filed a lawsuit against 16 banks, including Barclays, Credit Suisse and Royal Bank of Scotland, claiming their collusion in the manipulation of LIBOR between 2007 and 2011
- Ireland's GDP unexpectedly fell by 2.3% in the fourth quarter of last year
- China's biggest e-commerce company Alibaba is planning an initial public offering in New York
- Vodafone is in advanced stages of talks to acquire Spanish cable company Ono for more than €7bn
- A sharp fall in exports widened UK's trade deficit to £2.6bn in January
- British retailer Morrisons reported that hackers had stolen its staff payroll data
- Indian wholesale price inflation dropped for the third consecutive month in February
- Data provider Dealogic reported that cash-only deals accounted for just 48% of the total volume of M&A this year – the lowest level since 2005
- Fund data provider EPFR reported that retail investors pulled $1.25bn of cash out of China funds in the week to 12th March, the biggest weekly outflow since last June
- Chinese exports fell by an unexpected 18% year-on-year, swinging its trade balance into a deficit in February
- Chinese industrial production growth dropped to a 4-year low in the January-February period
- The US government reached an agreement with BP ending a ban barring the petroleum giant from bidding for government contracts since November 2012
- Moody's cut the Royal Bank of Scotland's credit rating to Baa2 on concerns over the complexity of the bank's restructuring plan
- The Office for National Statistics updated the basket of goods it tracks prices of, to calculate the consumer price index, to include Netflix and fruit snacking pots, and exclude DVD recorders and gardeners' fees
- A study by researchers at MIT, Harvard and Wharton revealed that investors are more likely to put money into a business idea pitched by a man than a woman and more so if the man is good looking – handsome gains
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