PROCUREMENT HEADS BLOG

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The World Economic Outlook

I was lucky enough to attend a networking event hosted by Venture Recruitment Partners at St Mary’s Stadium with David Smith, Economics Editor of the Sunday Times, who talked about the current ‘cold snap’ we find ourselves in.

Only 18 months ago, the OECD was predicting 4% growth, with the UK finally shaking off the effects of the global recession.

However, 2019 has been the weakest year since the financial crisis, much of which is being underpinned by a return to protectionism and the trade war between China and the US.

Donald Trump can be characterised in two ways, so says Smith. 

The good Trump, cutting Corporate Tax and stimulating business, and the bad Trump, that is now reverting to protectionist policies. 

Closer to home, Germany only just avoided recession and is very much viewed as the ‘canary in the coal mine’ when it comes to Europe. 

Nonetheless, Smith advocates it best to view this a ‘soft patch’.

Where does Britain fit in the world economic outlook?

In the last six months, the Purchasing Manager Index has weakened and this is often the barometer of market-wide confidence. 

Since the EU referendum, business investment has been the big casualty of uncertainty.

Quoting Paul Krugman, columnist of the New York Times, ‘Productivity isn’t everything, but in the long run it’s almost everything’, Smith outlined that growth in the UK has all but flatlined. 

However, this is bolstered by strong employment – this being an undoubted bright spot. 

The unemployment rate is at its lowest rate since 1974, with real wages rising again and wage growth at 3.6%. 

Nonetheless, consumer confidence remains weak and the housing market has caught a cold.

World Economic Growth
World Economic Growth. Source: International Monetary Fund

The election and Brexit

Smith started by highlighting that the last big Conservative majority came more than 32 years ago. 

The Tory party thought Theresa May could repeat that in 2017, but she failed to secure a majority. 

Most recent general elections have been close or have delivered hung parliaments.

For him, the stop signs to international investment would be a messy Brexit and a Corbyn government. 

But Smith doesn’t see this as a possibility – in his mind, there are three possibilities:

  1. With a Tory majority, the UK leaves the EU under the Johnson withdrawal agreement on January 31st
  2. If Tories fall short of a majority, it is hard to see how they would govern. Having blown out the DUP they have no natural allies
  3. A properly hung parliament with no majority for Johnson, not enough support for Corbyn and probably another general election

But if Brexit can be done, will the economy get a bounce? 

In all likelihood, consumers should respond favourably, but businesses will be more cautious before unleashing investment. 

Either way, the clear direction that a majority government would bring to this saga would only be positive in Smith’s mind.

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