Upturn for UK economy in 2012?Posted on: 03 January 2012 by Andrew Stallard
Global and UK economy will recover in 2012 in spite of grim forecasts, says Andrew Stallard.
Yes you did read that correctly, there is some good economic news. The current media 'glass half empty' obsession with economic depression is not giving a balanced view of the world economy. Next year in the UK is likely to be economically difficult but there is more than a glimmer of recovery in the UK and global economy.
The media seems fixated with the Eurozone crisis; however, Europe now forms less than half the global economy, with America and the developing world being the majority. The continuing success of China and Brazil are well documented but companies on all continents are recording good profits.
The United States is the engine room of the world economy and if the US is recovering the rest usually follow. In the US, 75% of companies reported greater than expected earnings in the third quarter of 2011, according to a recent HSBC report.(1)
America is the World’s largest economy and Gross Domestic Product (GDP, which is the value of services and goods produced in a country) expanded by 2% over the previous quarter in the third quarter of 2011 recording the third increase in a row for 2011.(2) Unemployment, too, is finally showing signs of falling in the US with the number claiming benefit falling to the lowest level since May 2008.(3)
Although the domestic housing market in the US remains flat, banks are lending money to business at the fastest rate for three years, with lending increasing by an annual rate of 10% in the third quarter, according to a recent Federal Reserve report.(4) This is reason for optimism because businesses usually only borrow money when they foresee expansion and are hopeful about the future.
What about the developing World? Well with relatively high interest rates in India (7.5%) China (6.5%) and Brazil (11%) there is plenty of room for these governments to cut interest rates and so stimulate economic growth further in these key economies.(5)
Because these successful economies are unhampered by huge debts, they may offer to bail out their debt ridden European cousins in exchange for greater influence in World economic institutions such as the IMF (International Monetary Fund). The Brazilian finance minister, Guido Mantega, noted with satisfaction during a recent IMF visit to Brazil, that the IMF were not there to lend them money, but were there in search of funding for the developed World.(6)
But what about the UK? It's all well and good to hear about economies elsewhere, but what good news is there about our economy?
One story that struck us recently was the rise in car production in the UK, which was up for the sixth month in a row and showing an 8.5% increase from the same time last year. (7) Even better, this was despite there no longer being a scrappage scheme in place to artificially boost the figures.
So is now a good time to invest in the Stock market? Maybe, as long as you bear in mind that the fundamental principle remains the same; only invest if you are willing to take at least a five year view. Almost inevitably there will be shocks to come from the Euro disaster area. It's our view that Greece and some of the other weaker economies will have to leave the Euro and Germany will have to agree to underwrite the debt. Until those two things have happened, uncertainty will remain.
With talk of a 1930s style depression becoming more fashionable, one speech from that era becomes very relevant - that of President Roosevelt in his first inaugural address and his words the “Only Thing We Have to Fear Is Fear Itself”. The constant bad news being amplified by a doom and gloom media is in danger of becoming a self fulfilling prophecy.
The three things we need for a recovery are confidence, confidence and confidence. Being continually blasted by bad news makes us less likely to purchase a new car, replace a worn-out sofa or even take on a much-needed new employee - all things which help keep the economy growing and ensure recovery. It would be a tragedy if the unbalanced media view we receive each day turns a difficult economic situation into a dismal one.
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- BBC Business
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