UK: Deloitte Monday Briefing: The Not So Global Recession

A personal take on economics from Ian Stewart, Deloitte's Chief Economist in the UK.

• Like most economists we describe the financial chaos of 2008-09 as the Global Financial Crisis. The financial crisis was truly global, but we estimate that about 80% of the world's population escaped the ensuing recession.
• The rich countries of the US, Japan and most European countries fell into recession. Most emerging market economies saw only a brief slowdown in growth in 2009. While growth rates in the last six years in the rich world have been miserable, growth in emerging economies has been running above its trend rate.
• This year the International Monetary Fund (IMF) expects the global economy to grow by 3.6%, up from 3.0% last year, with activity expected to accelerate in 2015. This average hides widely varying prospects around the world.
• Better prospects for Europe and the US means that global growth is rather less dependent on emerging markets than in recent years.
• Nonetheless, the IMF expects emerging market economies, in aggregate, to grow at twice the rate of developed economies over the next 5 years – an even faster rate than before the crisis.
• Sentiment about emerging economies has, however, taken a knock in the last year. Weaker commodity prices, geopolitics, structural weakness and the prospect of higher US interest rates have played a part in downgrades to Chinese, Brazilian, Russian and Indian growth forecasts for next year.
• The term "emerging economies" lumps together a group of disparate nations. Russia, which is bracketed with China and India under the BRICs acronym, is forecast by the IMF to grow more slowly than the US or the UK over the next five years. The IMF expects Brazil, another BRIC member, to grow only slightly faster than the US.
• Neighbouring countries often have quite different growth prospects. Argentina's growth rate over the next five years is forecast to be one third of neighbouring Bolivia and Paraguay and about the same as Germany's.
• The world's growth hotspot, as it has been in the last 30 years, is expected to be developing Asia – including China, India, Malaysia, Philippines, Thailand, Vietnam and Cambodia.
• With growth forecast to average 7.0% over each of the next five years China should easily retain its crown as the world's fastest growing major economy. But, in an important development, China's trend growth rate is slowing. A 7.0% growth rate compares with an average of 10.2% seen over the last 32 years.
• Confidence about the economies of sub-Saharan Africa has grown in recent years. These economies are expected to grow well above their pre-crisis trend rates although South Africa, long Africa's dominant and most developed economy, is expected to post one of the lowest rates of growth on the Continent.
• The financial crisis has cast an especially long shadow over the euro area. The IMF expects the big three of Germany, France and Italy to grow, on average, by 1.4% a year over the next five years, half the rate of the US. Much slower post crisis rates of growth in Spain, Portugal and Ireland will add as a further drag on overall growth in the region.
• Over the next five years the IMF expects the world's slowest growing economies to be Japan and a cluster of mainly European nations. The fastest growing economies are in Africa and Asia, some of them, like Libya, South Sudan and Iraq, with a recent war torn past.
• High growth tends to come with risks. The IMF notes that fastest growing countries are at the greatest risk of suffering from shocks, such as deflation, geo-political tensions, slowdowns in major emerging economies and the failure of structural reform.
• On this basis the US economy, with growth forecast to average 2.9% in the next five years, looks relatively attractive. Its long term growth rate has not been significantly dented by the financial crisis. Indeed, a 2.9% growth rate puts it in the same league as a number of emerging economies, including Brazil, South Africa, Turkey and Argentina - and well above Russia.
• The IMF expects the UK to post growth of 2.5% over the next five years – a slower rate than before the crisis, but enough to put the UK towards the top of the European growth league table with the likes of Sweden.
• The global economy is recovering. Yet such generalisations conceal widely varying prospects across economies. The world economy may be more integrated than ever, but country-specific factors continue to be a dominant influence on economic performance.

MARKETS & NEWS

UK's FTSE 100 ended the week up 1.4%.

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

KEY THEMES

• Japanese machine orders fell by 19.5% in May, their largest monthly fall in almost 3 decades of available data
• Data from a REC/KPMG report on jobs showed the highest monthly reading for salary rises since the survey launched 1997; with 38% of companies in June having to increase pay to hire new staff
• The British Chambers of Commerce warned the Bank of England against "any hasty decisions on raising interest rates in the very short-term"
• British retailers saw a 1.8% monthly fall in prices in June, the biggest annual fall in prices since at least 2006 according to data from the British Retail Consortium (BRC)
• The proportion of shares earmarked for short-selling by hedge funds is now at its lowest level since the financial crisis, despite warnings of renewed market exuberance
• Luxury carmaker Rolls-Royce reported record sales in the first half of the year, with Asia Pacific sales up nearly 40% in the 12 months to June
• The so-called 'magic circle' of elite law firms with headquarters in London and a large international client base, reported record revenue growth for 2013-14, benefitting in part from the return of high-value M&A deals
• Thousands of accounts at the Vatican bank have been shut down – with total assets of around €200m – after investigators discovered that they did not have the right to bank with the Holy See
• The Financial Conduct Authority said that five times as many businesses are currently applying for banking licences as were granted them last year, following the relaxation of financial requirements for small banks
• Senegal is planning its return to international debt markets, likely launching a bond next week after the Ivory Coast does the same
• A Chinese state media broadcaster warned about the ability of Apple's iPhone's to track users, quoting a researcher who claimed this "sensitive" data could even reveal "state secrets"
• Popular TV series Game of Thrones is to film part of its next series in unemployment-hit Spain, where more than 10,000 Spaniards have applied to work as extras in the show
• The boss of Airbus's passenger jet business urged the European Central Bank (ECB) to tackle the "crazy" strength of the euro
• WiFi provider Let's Gowex was forced to declare bankruptcy and leave the Madrid stock market after its chief executive admitted to falsifying the company's accounts
• The Guardian reports that a post-Scottish independence 'suspense thriller' called White Settlers is to premier this autumn, in which a relocated English couple get terrorised by their new Scottish neighbours
• Under Mark Carney's new regime, the Bank of England is replacing its annual summer cricket match with the less "exclusive" sports of rounders and football – that's not cricket

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