Archive for January, 2010
Thursday, January 28th, 2010
The volume of merchandise trade of the G7 group of countries grew in the third quarter of 2009, after being largely stable in the previous quarter. In fact, exports from G7 countries grew by 5.0% quarter-on-quarter and imports rose by 4.1% in the third quarter. However, when we look at year-on-year figures, exports were down 17.5% and imports also fell by 14.6%.
Germany actually increased its exports by 3.3% over the quarter, whilst the US showed a growth of 5.0%. However, the most impressive recovery was in Japan with exports rising 11.5% and imports up 4.7%. But, the recovery in Japan was from a lower base as Japan has seen a huge fall in its export trade. In fact, the year-on-year figures for the third quarter show that Japan’s exports by volume were still 25.1% down on the previous year, whilst imports were 12.7% lower.
 G7 countries show a promising growth in merchandise trade in 3rd quarter of 2009
There was an increase in the value of exports of goods in the OECD area of an impressive 9.6% in the third quarter of 2009. However, services did not perform so well with an increase in exports of only 2.6%. When exports of goods and services are taken together the increase was 7.8%. The extent of the upswing is due, therefore, to the high share of goods in total trade.
Tags: exports, goods, imports, merchandise trade, services
Posted in International Trade, OECD | No Comments »
Tuesday, January 26th, 2010
Surprising figures just released by the ONS show that Gross Domestic Product (GDP) increased by 0.1% in the fourth quarter of 2009, compared with a decrease of 0.2% in the third quarter. This was put down to growth in both services and production.
However, this figure was quite surprising as most commentators were expecting a larger rise, even up to 0.4%, although this does follow on from six consecutive quarters of negative growth. The UK recession commenced in the April-June quarter of 2008 and the economy has contracted by 6.0% over this period.
So, not so much ‘out of the woods’ at the moment, but at least we can see a patch of blue sky through the trees. One thing to bear in mind is that this preliminary estimate of GDP is made with only about 40% of the data available and every first estimate since the first quarter of 2007 has been revised later.
 The 0.1% GDP growth was due to growth in production industries and services.
The detailed figures show that total production output rose by 0.1% in the fourth quarter, compared with a fall of 0.9% in the previous quarter. The largest contribution to this was seen from the manufacturing sector which recorded a rise of 0.4%, compared with a fall of 0.2% in the previous quarter.
So we have got a little bit of good news, but it is a bit like your favourite aunt only putting £10 in your birthday card when she usually gives you £20 – it’s welcome but at the same time a bit of a let down. Of course, we should remember too the news posted last week that unemployment had fallen for the first time in 18 months.
The question now is what the political responses will be. Yesterday, Gordon Brown said: “The biggest mistake we in Britain and individual countries could make would be to withdraw now from the supportive actions we need for growth and jobs.”
This was countered by David Cameron who was demanding more urgent action and said: “That means some reduction in public spending plans in this coming financial year.”
It seems probable that today’s GDP announcement will give more strength to the government’s argument. Perhaps, a refusal to cut spending before the election is not a political move after all? Okay, perhaps not.
Tags: economic growth, Gross domestic product, Manufacturing, production, recession, services
Posted in Manufacturing, Service Sector, economic growth, industrial production, recession | No Comments »
Monday, January 25th, 2010
Over the last three years the euro has gone up in value by 30% against sterling, whilst the dollar has risen by 20%. This fall in the value of the pound has been picked up in three articles which I have been reading over the weekend.
The first, published in the Telegraph online this morning, supplies some good news. In quoting data supplied by the Royal Bank of Scotland it says that exports rose by £723m between the second and third quarters of last year, and that this was largely due to the weak pound.
In fact, the average value of goods exported per company rose by £63,086 and the average value of goods sold per UK exporter was £1.1m. The full article can be accessed here.
On the other hand, an article published in The Observer yesterday, written by Richard Wachman, suggests that the fall in the pound is going to entice more foreign companies to bid for UK ones. The full article is available here.
A third article written by Spencer Drury is called UK for Sale and is about to be published by Anforme Limited as part of our International Trade and Globalisation: The Cutting Edge photocopiable. Watch our home page at www.economics.ac for upcoming details.
Drury publishes the following graph from figures published by the ONS to show that 40% of the shareholding of all UK companies is owned by parties overseas.
 Source: ONS
Why are overseas companies so interested in acquiring British ones? Wachman suggests that the weakness of the pound will cause more companies to follow Kraft’s initiative of bidding for Cadbury.
On top of this, the UK has a very liberal attitude to open markets. Virtually anything is “buyable” in the UK, as opposed to some other countries where restrictions are placed on the purchase of crucial firms and industries. Drury cites the example in July 2005 in France when Francois Loos, industry minister, declared yogurt to be a ‘strategic’ business after it appeared that a potential takeover of Danone by the US company Pepsico might be in the offing.
A third current factor, mentioned by Wachman, is that many companies are now experiencing subdued growth after the recession, and one way to achieve a step-change in growth is to buy another business.
Finally, we need to remember that a lot of money is sloshing around in the sovereign funds of various countries such as several in the Middle East and China.
Of course, foreign ownership of UK companies need not be a negative event, if it leads to greater economies of scale, including managerial economies. Larger corporations may have greater global reach and may also be able to raise the productivity of UK workers. As Drury points out, look how the UK car industry bounded ahead in productivity terms after Nissan, Honda and Toyota moved into the UK.
The current sterling weakness will have a positive impact on export sales but a negative impact on imported costs and inflation. But, we will probably have to wait until all our industries are foreign-owned before we know the complete repercussions.
Tags: company takeovers, exports, imports, Inflation, productivity, sterling
Posted in Inflation, International Trade, mergers and takeovers, productivity | 1 Comment »
Friday, January 22nd, 2010
The Chinese economy grew by 10.7% year-on-year in the final quarter of 2009. This was the fastest growth for two years and meant that there was a growth in output for 2009 as a whole of 8.7%. The official growth target had been 8.0%.
Gross Domestic Product totalled £3,020 billion in 2009 which put China’s output just below the level expected in Japan. This means that it is very likely that during 2010 China will overtake Japan to become the world’s second largest economy. In fact, Goldman Sachs, the US investment bank, expects China to overtake the US in terms of GDP by about 2027.
Industrial production rose by 18.5% in the fourth quarter of 2009 in China and fixed capital investment rose by an incredible 30.5%. Ma Jiantang, commissioner of the National Bureau of Statistics told a press conference that: “China has become the first, on the whole, to achieve recovery and stabilization in its economy.”
However, not everything in the economy is entirely rosy. China has just seen a rapid rise in inflation levels. Consumer price inflation rose from 0.6% in November year-on-year, to 1.9% in December. Food prices were responsible for 90% of the December increase, largely due to the extreme cold weather experienced in Northern China.
 China may allow the Yuan to appreciate, to help reduce import prices and offset inflation.
Will inflation get out of control? The Chinese government has operated a very loose monetary policy and there has been a huge stimulation of bank credit. In fact, the M1 measure of the money supply rose by a staggering amount of nearly 35% in 2009.
But, there is still a great deal of overcapacity in the economy, and observers believe that this will help to contain inflation, with most forecasts anticipating an inflation level of about 3.0% this year. It is also expected that the government may start to create an appreciation in the value of the Yuan. This would help to reduce import prices on commodities and other goods but would obviously make exports more expensive. However, given the fact that exports grew by 17.7% in December compared with the same month in 2008, this may not be a huge problem.
Tags: China, currency appreciation, economic growth, GDP
Posted in China | 1 Comment »
Thursday, January 21st, 2010
Public sector borrowing in December last year reached £15.7bn, which was £1.9bn higher than the December 2008 figure, according to the Office for National Statistics today. This was the highest December figure on record.
This means that the government’s net borrowing has reached £120bn for the first nine months of the fiscal year and seems to be on track for the £178bn of net borrowing forecast by the Chancellor for the full year. In fact, some analysts now believe the figure will be below forecast.
One aspect of the figures which was particularly pleasing was that tax receipts in December were only 0.4% down on the same month of the previous year, which was the smallest year-on-year fall since September 2008.
 The economy is still in intensive care, but the vital signs are a little stronger.
Public sector net debt, expressed as a percentage of gross domestic product was 61.7% at the end of December 2009, compared with only 51.7% at the end of the same month a year earlier. This means that total net debt has now reached £870bn, compared with £733.9bn in December 2008. To make donations please ensure that your cheque is made payable to “HM Revenue and Customs”, although it is probably better to pop it into the post rather than giving it to your local MP to hand over.
We may be grasping at straws but in the right light the latest figures do not look as bad as they could have done. Although it is a bit like your favourite soccer team getting a consolation goal in the last minute of the game, after having conceded nine earlier in the match.
We can now only wait with bated breath for the ONS to release the GDP statistics next week for the fourth quarter of 2009. There is a general conviction that we will see a figure showing modest growth.
Tags: economic growth, national debt, Public sector borrowing, tax receipts
Posted in Public Finances, economic growth, government borrowing, taxation | No Comments »
Wednesday, January 20th, 2010
The number of people unemployed between September and November 2009 fell by 7,000 to reach 2.46 million, according to the ONS this morning. Many economists had been expecting a rise in unemployment to about 2.50 million. This is the first quarterly fall in unemployment since the three months to May 2008, and gives an unemployment rate of 7.8%.
However, there was a rise in the long-term unemployed. Those out of work for more than a year rose by 29,000 over the quarter to reach 631,000, which was the highest total since the three months to November 1997. This is obviously a serious problem and suggests that there may be a structural problem reflecting redundant skills in parts of the workforce.
The number of people who were claiming Jobseeker’s Allowance in December 2009, also known as the claimant count, also fell by 15,200 on the previous month to reach 1.61 million. This was the second month running that the claimant count has fallen and it reflected the largest monthly fall since April 2007.
 Is unemployment back on track?
This provides additional evidence that the economy is moving out of recession and is added to by the fact that the number of vacancies in the three months to December 2009 rose by 16,000 to 448,000.
On the other hand, the employment rate fell by 0.1% on the September to November quarter to reach 72.4%. This meant that the number of people in employment fell by 14,000 to reach 28.92 million. However, although this figure is worrying on its own, it is made worse by the fact that the number of people employed full-time during the quarter fell by 113,000 which was offset by a rise in the part-time employed of 99,000. It is not good news that we seem to be swapping full-time jobs for part-time ones, and this fact is in danger of being masked by the lower fall in total employment. In fact, the figures show that there were 1.03 million employees and self-employed people who were working part-time, solely because they could not find a full-time job.
As far as earnings are concerned, average regular pay excluding bonuses rose by 1.1% in the three months to November compared with a year earlier. The level of unemployment is therefore keeping earnings down reflecting the amount of slack in the economy. And, it looks as though this slack will get worse as we can expect something of a cull in the number of public sector jobs after the election. “Vote for us now and lose your job later” will probably be one of the more popular electoral slogans.
So, as far as unemployment is concerned, we have seen some surprisingly good figures but we are not out of the woods yet, and is doubtful whether the creation of private sector jobs from the recovery will be able to outweigh the loss of jobs in the public sector.
Finally, I have just come across an interesting, recently published article by the Federal Reserve Bank of San Francisco, entitled ‘Inflation: Mind the Gap’. This provides research that suggests that the Phillips Curve has made a comeback during the recent recession. You can access it here.
Tags: average earnings, employment rate, unemployment, unemployment rate, vacancies
Posted in Earnings, Employment, unemployment | No Comments »
Tuesday, January 19th, 2010
CPI annual inflation which is targeted by the government, rose to 2.9% in December 2009 from 1.9% in November. This increase of 1.0% was the largest ever increase in the annual rate between two months.
Why was the increase so large, especially considering that the consensus amongst City economists was for a rise to 2.6%? The basic reason is not so much about what happened this year but what happened last year. We have to remember that we are looking at an increase based on the figures for the previous year, and what happened to prices in December 2008 was exceptional.
There were three main contributing reasons. Firstly, the standard rate of VAT was cut from 17.5% to 15.0% in December 2008. Secondly, there were sharp falls in the price of oil and thirdly, there were, unusually, pre-Christmas sales that month as a result of the economic downturn. Taken together, these events led to the CPI falling by 0.4% between November and December 2008. This means that the increase of 0.6% in the CPI between November and December 2009, together with the previous year’s fall, generated the 1.0% upturn in the index. In fact, a monthly increase of 0.6% in the CPI between two months is not in itself so untypical.
The recent trend can be seen in the graphic below.
 Source: ONS
The largest upward pressure on the CPI in December 2009 was from the transport sector, with fuels and lubricants rising in price by 0.2% on the month, compared with a fall of 6.2% a year ago. There was also upward pressure from clothing and footwear where prices fell between November and December 2009 but fell less than they between the same two months in 2008. However, overall, there was upward pressure on prices from 10 of the 12 divisions which the ONS measures and there were no significant downward pressures.
As far as RPI annual inflation is concerned this rose by 2.1% from 0.3% in November to 2.4% in December 2009. The last time there was a monthly increase of this magnitude was between June and July 1979. The RPI was affected by the same pressures as the CPI as shown above. But, in addition, it was affected by the housing sector. Here, mortgage interest rates which fell significantly between these months in 2008 actually rose in the same period of 2009.
RPIX inflation, which is the RPI excluding mortgage interest payments rose from 2.7% in November to 3.8% in December 2009. At the same time, core inflation, which excludes food, energy, tobacco and alcohol rose by 2.8% on an annualised basis, which again is the fastest growth rate since records began in January 1997.
What of the future? The Bank of England has forecast that the CPI will show a rise of about 2.6% over the first quarter of 2010 and once the change back up in the VAT rate has worked its way through, many economists believe the CPI will fall back. There is also a difference of opinion as to the length of the time lag for the previous falls in the value of sterling to work their way through into higher domestic prices, and if these have been underestimated, we may see more pressure on the CPI in the months ahead.
Finally, disposable incomes increased by 5.2% in the year to the third quarter of 2009, particularly due to the effect of lower mortgage payments. If this goes into spending rather than the running down of existing debt as has been happening, then again we could see a feed through into higher prices.
Tags: core inflation, CPI, disposable income, Inflation, RPI, RPIX, sterling
Posted in Consumer Expenditure, Consumer Price Index, Inflation | No Comments »
Monday, January 18th, 2010
The recent recession has increased the gap between city economies in the UK, according to the Centre for Cities annual index. When looking at the increases in the Job Seekers Allowance claimant count rate in November 2009, compared to February 2008, Hull fares the worst. In fact the claimant count rose from 4.8% to 8.4% over this period. At the other end of the scale, the rate only rose from 1.4% to 2.1% in Cambridge.
Cities Outlook 2010, produced by the Centre for Cities, which is a non-partisan research and policy institute, says that the UK will face an uneven recovery as we move out of recession. “Already-robust economies like Brighton are more likely to grow stronger, leaving others like Doncaster further behind.”
The Centre for Cities says that 39% of all jobs in England are based in only five cities – Greater London and the City Regions of Manchester, Birmingham, Leeds and Liverpool. They also mark the cities of Brighton, Milton Keynes, Reading, Cambridge and Edinburgh as five to watch. These are identified as having strong private sectors, high levels of entrepreneurship, highly educated workforces and large shares of knowledge-intensive jobs. In fact, Brighton added 20,000 private sector jobs over the past decade, which was the highest in the UK.
Other cities such as Stoke, Burnley, Barnsley, Newport and Doncaster are cited as having a weaker business base and a much tougher outlook. All of these cities lost jobs over the past then years and they have low rates of business start ups with many of their residents having no qualifications. For example, 23% of the residents of Burnley have no qualifications compared to the GB average of 12.4%.
Dermot Finch, Chief Executive of the Centre for Cities said: “We face an uneven recovery. The national economy may be emerging from recession but cities like Brighton are likely to recover more strongly than the likes of Barnsley.
“Party leaders need to wake up to the reality that some cities will still feel in the middle of a recession until well after the election. The next Government needs to help these struggling cities fix the basics – like improving schools and public transport so they can attract new business and jobs.”
Tags: growth, UK cities, unemployment
Posted in economic growth, unemployment | No Comments »
Friday, January 15th, 2010
UK households spent less on average per week on shoes and clothing in 2008 than at any time since 2001-02, according to ‘Family Spending’, the annual report on household expenditure from the Office for National Statistics.
Spending on clothing and footwear fell to an average of £21.60 per week from a high of £23.90 in 2004-05. Why did we spend less? Primarily because of the credit crunch which led to a lot of high street discounting towards the end of 2008. So why do we need bigger wardrobes? Primarily because the evidence shows that while we are spending less on clothes, we are actually buying more of them. This is what some have called the “Primark Effect”. Evidence shows that consumers are now spending £1 in every £4 on budget fashions.
 We are spending less on clothes overall but buying more cheaper clothes.
However, in total, average UK household weekly expenditure was £471.00 in 2008, compared to £459.20 in 2007. In fact, most categories of spending went up in 2008, with food and non-alcoholic drinks rising to £50.70 per week compared to £48.10 in 2007. There was also a rise in spending on electricity, gas and other fuels to £18.90 from £17.20.
The single largest category of expenditure is transport, with the average weekly household spend rising from £61.70 in 2007 to £63.40 in 2008.
The figures also reveal an interesting difference between rural and urban areas. In 2008, the average spend in rural areas was £505.40 compared to £446.70 in towns and cities. This difference was mainly due to spending on transport, recreation and culture.
The survey also found strong regional differences. Northern Ireland had the largest average weekly household expenditure at £479.70 with Wales showing the lowest spend at £406.70. Also, in England the north-south divide was very evident with above average spending stretching from the South-West, to London, the South-East and the East. The lowest level of expenditure was in the North East, although the statisticians at the ONS have probably never visited Newcastle’s Bigg Market on a weekend evening – or any evening come to that.
Tags: Consumer Expenditure, household spending
Posted in Consumer Expenditure | No Comments »
Thursday, January 14th, 2010
Consumer confidence fell in the last quarter of 2009 with nearly a third of consumers expecting the economy to get worse this year, according to research published today by the Association of British Insurers.
Of 2,500 adults questioned, 31% expected the economy to worsen in 2010 with only 39% being optimistic – a sharp fall from the 52% recorded in the previous quarter.
There was a rise of 4% to 31% in the numbers who said they were concerned about job security. The result of this has been a concerted move by many consumers to pay off existing credit card debts and other loans in an attempt to get back on an even financial keel, in preparation for what they see as a worsening of the economy. In fact 42% of those questioned have started paying back non-mortgage debts compared to only 34% a year ago.
 Consumer pessimism is causing more to pay off their debts.
Also, a fall in the plans of consumers to save has been noted. Of those saving regularly, only 17% expect to be saving more this year which is a fall from the 24% recorded in the last quarter.
According to Dr Rebecca Driver, the ABI’s Director of Research and Chief Economist: “Despite continued fiscal and monetary policy intervention, consumer perceptions of the economic prospects and their own job security in 2010 have deteriorated.
“Seven-in-ten people feel that they would cope badly financially if they lost their job, with four-in-ten admitting that they had not made adequate financial provisions to enable them to cope with a large, unexpected expense. This is not because people are spendthrift – the majority would prefer to go without than get into debt…”
At the moment it seems as though consumers are choosing to run down savings to pay off debt rather than looking to increase their consumption spending.
Tags: consumer spending, debt repayment, saving, unemployment
Posted in Consumer Expenditure, savings, unemployment | No Comments »
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