Posts Tagged ‘Middle East’

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Is it for real? We keep hearing talk of an export-led recovery for the UK. But is it simply that the UK exports are so low that any rise looks to be quite significant in percentage terms. A new report from Ernst and Young provides just a hint that this time it might be for real.

UK companies need to look abroad. The last few years have seen UK consumers cutting back, and that, suggests Ernst and Young, is why they have been focusing on ways to increase exports.

The story overall? Well, let’s return to that in a moment. Let’s start with the positive.

According to Ernst and Young, the West Midlands “is emerging as an export powerhouse” and “is on track to grow goods exports faster than any other UK region by selling high-end engineering far outside Europe.” Engineering goods exports are forecast to grow at “an annualised rate of 4.8 per cent, worth £6.9 billion in 2017, compared with £5.5 billion in 2012.”

UK automotive exports to China are expected to grow 11.6 per cent – making it the UK’s top automotive trading partner by 2017, while exports of personal vehicles to Thailand are expected to rise from $302 million in 2012, to $617 million by 2017. The UK is expected to capture a 53 per cent share of the entire import market. UK engineering is also seeing exports rise to the Middle East – with growth in turbo jet exports to Qatar alone forecast to grow from $273 million in 2012 to $481 million in 2017. And finally, UK biopharma exports to China are expected to double from $52 million in 2012 to $104 million by 2017, with Chinese biopharma imports set to rise to $2.5 billion by 2017 (from $1.4 billion in 2012).

Break it down bit further, and Ernst and Young forecasts that in 2017, UK engineering exports to China will be worth $2.4 billion, automobile exports $3.8 billion and metals $2.1 billion. For Brazil, it forecasts $0.7 billion for engineering, $0.6 billion for automobiles and $0.6 billion for chemicals. For Hong Kong it forecasts engineering exports of $1.7 billion, $1.4 billion for electronics, and $1.3 billion for previous metals. And for Saudi Arabia it forecasts engineering exports of $0.9 billion, $0.4 for electronics and $0.4 for pharmaceuticals.

And yet for all that, Ernst and Young says that across the UK exports are not growing fast enough. It forecast 0.3 per cent annual growth for UK good exports against 1 per cent for the European average between now and 2017. So for the conclusion: making progress, but could do better.

© Investment & Business News 2013

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When surveys start concluding that certain vital sectors of the UK economy are enjoying the best growth rate since 2006, you know you need to start taking things more seriously. Until recently the UK recovery looked – how can one put it? – well, it looked quite nice. Surveys and hard data pointed to growth; they suggested that the UK was comfortably clear of recession territory, but there was always that reminder that the recovery was really quite lacklustre compared to what it was like before 2008. But then yesterday and this morning it changed. Not one, but two surveys have seen the light of day in the last 24 hours, which suggest that certain vital sectors are now seeing their best performance since 2006.

Just to remind you, the UK economy may not be in recession, but it is still in a downturn. GDP is still in excess of 3 per cent below the 2008 peak, and that is a record. Data goes back to the early years of the 20th Century and in that time no downturn has lasted as long. In fact so severe is the downturn that some are going further and calling it an economic depression. It is a funny sort of depression though. It is undeniably the case that unemployment is too high, but then neither is it at the kind of level that one would normally associate with economic depression. What is different this time around is that while employment has been higher than one might expect given what is happening in GDP, average wage increases have been lower. It is now more than three years since average wage increases were higher than inflation.

The latest data says the UK economy expanded by 0.5 per cent in Q2, compared to 0.3 per cent in Q1. So that’s an improvement, but the fact is that 0.5 per cent growth is not that good. At this stage in the economic cycle, with the economic output so far behind potential, the economy should be booming. Hold that thought. Four surveys have seen the light of day since last Thursday, and between them they suggest that the UK economy is finally growing the way it should be – it may even be close to booming.

First off, there was the latest Purchasing Managers’ Index produced by Markit/CIPS for manufacturing. The index rose to a 28 month high in July, with a score of 54.6 – with any score over 50 supposedly denoting growth. This was the best bit from the report: “New export business rose at the fastest pace for two years, reflecting increased sales to Australia, China, the euro area, Kenya, Mexico, the Middle East, Nigeria, Russia and the US.”

Second off, we got the latest Purchasing Managers’ Index, again from Markit/CIPS, this time for construction. The index pointed to the fastest rate of residential construction since June 2010 and the steepest improvement in new order levels since April 2012.

So far the story is okay. Surveys point to an economy improving, but at best they only suggest the performance is comparable to what we saw in 2011, maybe late 2010. But the UK economy was not in good shape back then, so big deal. The UK economy is not as terrible as was in 2012, but it is as bad as it was in 2011.

But then yesterday the story became altogether more promising. The latest Purchasing Managers’ Index for services rose to its highest level since 2006. In fact with the headline seasonally adjusted Business Activity Index standing at 60.2, it was the highest reading since December 2006.

But even that is not the best bit. July also saw the sharpest rise in backlogs of work since February 2000. Now when backlogs rise, you can normally expect output to rise in the following months to try to catch-up. In other words, if anything, the next few months should be even better. Collectively, the three PMIs point to quarter on quarter growth of 1.5 per cent. If that proves right, the UK will have enjoyed its fastest growth rate in 14 years.

Finally, this morning saw a survey from the British Retail Consortium indicating that retail sales rose by 3.9 per cent in July, which is the best year on year rise since 2006.

Okay, there are snags. For one thing much of the expansion appears to be fed by UK households saving less, and borrowing more. Not everyone welcomes this development. For another thing one-offs partly explained July’s retail growth: with the good weather and sporting success being cited for reason for higher sales.

But lurking in the data are signs of something that may be more permanent. The rather unfortunate timing of the economic depression in the UK’s largest export market – the Eurozone –has really not helped things. It is encouraging that there are signs that the UK is exporting more outside the euro area. So, let’s enjoy the moment.

Some are now patting themselves on the back. They say that the economic recovery proves they were right. Austerity works, QE works. But is that really right? Read the next piece for an answer.

Does the recovery prove that QE works?

© Investment & Business News 2013

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31 July 2013, and 1 August 2013: mark these dates in your diary. On these days economic news was revealed that meant one of two things; either the economy was well and truly on the mend, or we are seeing one very big blip. If it is the former, celebrate; if it is the latter enjoy it while it lasts.

They hadn’t expected much. Purchasing Managers’ Indices (PMIs) suggested the US economy had a rotten Q2. Sure, said the optimists, Q3 would be better, but the second quarter of this year was one we would rather forget. Then on 31July 2013 the hard data was released and it told a very different tale.

The US economy expanded at an annualised rate of 1.7 per cent in Q2, and by 1.4 per cent year on year. That was much better than expected, much better than the PMIs suggested.

Both business investment and residential investment helped – in the US when house prices go up so does construction, unlike in the UK where the correlation seems only very vague.

So that was the US. The news was good in the Eurozone too. The latest PMI from Markit on manufacturing in the region was out yesterday and it rose, hitting a two year high, with a reading of 50.3. To put that in perspective, any score over 50 is meant to correspond to growth. A reading of 50.3 is nothing special, but by recent standards it is positively wonderful.

Broken down by country things look like this:

Ireland,   51.0,    5-month high
Netherlands   50.8   24-month high
Germany   50.7   18-month high
Italy   50.4   26-month high
Spain   49.8   2-month low
France   49.7   17-month high
Austria   49.1   8-month high
Greece   47.0   43-month high

And finally we turn to the UK. The latest PMI for UK manufacturing rose to 54.6, a 26 month high. And get this. According to Markit which compiles the data along with CIPS: “New export business rose at the fastest pace for two years, reflecting increased sales to Australia, China, the euro area, Kenya, Mexico, the Middle East, Nigeria, Russia and the US.”

Apologies for raining on such a pleasant parade, but the story was not good everywhere. In Russia and Turkey the PMIs fell sharply and look worrisome, in China the picture is mixed, with the official PMI pointing to a modest pick-up and the unofficial PMI from HSBC/Markit, which puts more weight on smaller companies, deteriorating.

Still with the PMIs, the news on Poland and the Czech Republic was much better. Watch these two countries closely, especially Poland. If there is truth in all this talk about reshoring, Poland, with its proximity to the developed part of Europe, may be a big beneficiary.

One worry is that other data out yesterday showed that Sweden contracted in Q2. The out and out bears – those who are cynical for a living – question the PMIs. They say they did not predict the slow-down in Sweden; they did not predict the pick-up in the US, and they are giving a misleading picture on Europe. The big fear relates to central bankers tightening policy as a result of this data. The Fed may accelerate its plans to ease back on QE.

As for the European Central Bank, it is cautious and conservative to a T. There is a permanent danger it will lose its nerve, and tighten again, sending the Eurozone back into recession.

© Investment & Business News 2013

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The news on the UK economy is actually not bad at the moment. Oh sure there are plenty of reasons for cynicism, and some of the news may contradict common sense, but recent data is looking better, indeed, green shoots seem to be appearing.  Take as an example the latest Purchasing Managers’ Index, or PMI, on UK manufacturing.

The UK economy grew by 0.3 per cent in Q1, according to the ONS, but output is still some 3.9 per cent down from peak, which is pretty awful.

But that was in the past; what about now and what about the future?

The latest data from the ONS on industrial output was okay – it had output up by 0.1 per cent in April, after increasing by 0.7 per cent the month before and 0.9 per cent the month before that. All told, annual growth is now running at 0.6 per cent. That is still contraction, but it is getting better.

Friday saw more data from the ONS, this time on services, and again it was encouraging. The services sector grew by 0.2 per cent over the previous month in April, and is now expanding at 2.0 per cent year on year.

And now it is time to turn to June. The latest manufacturing PMI from Markit/CIPS, out this morning, hit 52.5. So what does that mean? Well, any score over 50 is meant to correspond to growth, and this particular reading was in fact the highest reading for the index in 25 months.

And especially encouraging is the more forward looking data. A sub index tracking new orders rose to its highest level since February 2011.

Markit said: “Manufacturers reported solid demand from domestic markets and clients based in Europe, China, North America, Scandinavia and the Middle East.”

There was good news on the inflation front too. Another sub index tracking input prices showed falling prices for the first time in three and a half years.

There are other signs, both factual and anecdotal, of UK manufacturing enjoying a slow march to recovery. UK car exports have risen rapidly of late and are now running neck and neck with imports. Even DHS has recently announced that it is now manufacturing sofas in the UK.

In this sense the UK seems to be following the US of slowly seeing manufacturers returning home, albeit with a time lag and on a much smaller scale.

Maybe the UK is at last benefiting from the falls in sterling which occurred three years or so ago, or maybe something deeper is at work, and as labour costs in China rise, manufacturing at home looks more attractive.

The big one of course is 3D printing. The jury is out on whether this will create or destroy jobs, but just bear in mind the following two points.

3D printing is likely to have as significant an impact on industry as mass production did in the first few decades of the last century.

3D printing may also make it viable to make niche products like never before, targeted at very small market places. Economies of scale are set to be transformed, and local 3D printing experts/craftsman may find they are in vogue. This may lead to a closing in the gap we have seen in recent years between the very richest and everyone else.

Returning to the here and now, the UK economy has plenty of problems – house prices are too high, household debt has fallen but is still at dangerous levels, too many mortgage holders will face serious problems if interest rates rise, and real wages are falling.

But recoveries have to start somewhere, and there is just a chance that that somewhere is UK manufacturing. Or is it all just hype and is the current apparent recovery just a blip?

© Investment & Business News 2013

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Just a hint, but good news may have been lurking in the latest report on UK manufacturing. More to the point, it was exports – the one area in which the UK really does need to see a better performance – that provided the promise. On the surface there was nothing out of the way in the latest Purchasing Managers’ Index – or PMI – for UK manufacturing.

The index rose from 48.6 in March to 49.8. Any score under 50 is mean to suggest contraction. So the index is still suggesting UK manufacturing is in recession.

Furthermore, much of the gain can be put down to clearing backlogs of work, caused partly by all that nasty weather we had in March hitting production. The good news, however, relates to the more forward looking indicators. The output balance jumped from 47.8 to 50.5. Again, a reading of 50.5 is no great shakes, but everything is relative – and relative to recent months that is a good showing.

The sub index measuring exports, however, rose above 50 for the first time in a year, and in fact hit its highest level since July 2011.

Apparently, the companies which were surveyed to form the index reported rises in sales to clients in North America, the Middle East, Latin America and Australia.

Just to reiterate, things are relative.

UK manufacturing is still barely expanding, and export growth is trivial. Some of the improvement may have been down to catching up with output lost during that cold March. Furthermore, last week the CBI industrial trend survey indicated a decrease in total new orders driven by a fall in domestic demand in the last quarter. It recorded the fastest pace of decline since January 2012.

On its own this report does not point to recovery, not even an export recovery, but if other surveys support these findings over the next few weeks, that may not be sufficiently good news to justify opening a bottle of Champagne, maybe not even good enough to open a bottle of Prosecco, but a very small glass of cheap fizz may be forgivable.

© Investment & Business News 2013