Posts Tagged ‘oecd’


If 10cc were to write a song about the latest surveys on the UK economy they might say: “I don’t like surveys. Oh no, I love them.” The fact is that the surveys are not just good; they are remarkable, but can they really be right?

It was told here on Tuesday how the latest Purchasing Managers’ Indices (PMIs) on UK manufacturing and construction were pretty darned impressive. The last index tracking manufacturers’ output and another for new orders, both produced by Markit/CIPS each rose to their highest level since 1994. Another index, this time tracking construction, rose to its highest level since 2007.

Then yesterday came the PMI for services, and a composite index which combines the PMI readings for manufacturing, construction and services. The PMI for services rose to its second highest level in the 15 year history of the index – the record was set in December 2006.

As for the composite PMI, this rose to 60.7. Now you might say 60.7 what? Well to put this reading in context, any score over 50 is meant to be consistent with growth. And the 60.7 reading just happens to have been the highest reading ever recorded during the 15 years that these composite indices have been produced.

So what does this mean? Markit reckons its surveys points to growth in Q3 of between 1 and 1.3 per cent compared to Q2.

Also this week, the OECD was busy revising upwards. It is one of those strange-but-true quirks that forecasters tend to revise their predictions downwards when we enter a downturn, and revise upwards when we exit. The OECD is now predicting that the UK economy will expand by 3.7 per cent in Q3 on an annualised basis. Incidentally, if its forecasts are right the UK will be the fastest growing economy across the G7 in the second half of this year. But if the PMI indices are right, the OECD will in fact be understating the truth.

So far then it is all good stuff.

Can it last? It is clear that the Help to Buy Scheme has helped to buy the UK economy more growth. The danger remains, however, that the chancellor is creating growth from a new housing bubble. The Bank of England dismisses this, but do members of the MPC, for all their cleverness, understand the British psyche, and how prone it is to getting behind housing booms, even when they are built on smoke, mirrors and the naive belief that interest rates will stay at near record lows for the 25 years during which they still have a mortgage.

But there are reasons for hope, however. Take for example the news that Nissan is creating 1,000 new jobs, as it expands its factory in Sunderland – a car factory by the way that some people claim is the most efficient in the world.

Or take UK trade. Since the end of 2011, UK imports have grown by 5 per cent and exports by 6 per cent. According to the ONS, UK exports to the BRICS countries as a percentage of total UK exports have increased from 2.6 per cent to 9.1 per cent over the last 15 years. 6.0 percentage points of this rise have occurred since 2006. Okay imports have risen too, but in the last couple of years UK exports growth to the BRICS has outstripped import growth to those same countries.

It is just a shame the chancellor cannot put the same level of commitment into what we might call a Help for Business Scheme as he has put into the housing market.

© Investment & Business News 2013


Facts don’t seem to be all that important. If you want to express an opinion on immigration, it appears what matters is who can shout the loudest, and who is best at riding the latest populist wave. Many people say that immigration is the most important issue concerning the UK today. How about this for a contrary view? It may be more accurate to say the way in which the topic of immigration is portrayed in the press poses the single biggest threat to the UK today.

Let us look at some of the arguments often bandied about. First off, the UK is swamped by immigrants. The OECD has taken look at data on immigration flow for 2011 (or for the latest year for which data is available) for 24 of the largest OECD countries. The country with the largest inflow of immigrants was Switzerland, followed by Norway, then New Zealand, Australia, Sweden, Spain, Ireland, Denmark, Canada, Belgium, Austria, the Netherlands, and then the UK. In fact, migration inflows into the UK were less than the OECD average.

Now look at the migrant population, which is to say the percentage of population for each country who were foreign born. In the case of Luxembourg, the number stands at around 40 per cent. The OECD average is around 13.1 per cent; it is 12 per cent for the UK. In fact across 32 OECD countries, 15 have a higher proportion of their population who are foreign born, while 16 have a lower proportion. In other words, the UK is below the mean average and just above the median average.

What many people forget when talking about immigration is the other side of the coin: emigration. Setting aside the fact that immigration into the UK is below the OECD average, what many overlook is that the UK also sees a high level of emigration. According to the ONS, “500,000 people immigrated to the UK in the year ending September 2012, which is significantly lower than the 581,000 who migrated the previous year…. 347,000 emigrants left the UK in the year ending September 2012, similar to the estimate of 339,000 in the year to September 2011.”

So why are people entering the UK? There are lots of reasons, of course. But according to the ONS, “Study remains the most common reason for migrating to the UK.” But if people enter the UK to study, this is unambiguously a good thing. Foreign students bring money into the UK. That this number is so high is testimony to the strength of our universities. This is to be applauded. But, according to the ONS, “In the year to March 2013, there were 206,814 visas issued for the purpose of study (excluding student visitors), a fall of 9 per cent compared with the previous 12 months.” This is surely disastrous news, but such is the attitude towards immigration in the popular press that this worrying trend is barely mentioned.

What about the drain on public finances? OECD data suggests immigration made a 0.46 per cent fiscal contribution to the UK in the most recent year for which data is available.

What about the argument that immigrants take our benefits? Take for example data on Polish Immigrants. It turns out that around 7,000 Poles receive job seekers’ allowance, when there are in the region of 500,000 Poles in the UK. Does that strike you as a high number?

According to the Department of Work and Pensions, “As at February 2011, 16.6 per cent of working age UK nationals were claiming a DWP working age benefit compared to 6.6 per cent of working age non-UK nationals.”

Then there is the rather old argument that immigrants take up hospital beds; that the NHS cannot cope. Well does this argument lack joined up thinking or what? Is it not the case that immigrants are an important source of labour for the NHS?

The truth is the UK has always been a country of immigrants. From the Anglo Saxons, to the Vikings, to refugees fleeing from the French revolution. Many of our kings and queens were immigrants too. Richard the Lionheart couldn’t speak English. King George I and II were German through and through. Prince Philip is Greek; Prince Albert was German.

Isambard Kingdom Brunel was the son of a Frenchman. The man who did more than anyone to define British classical music, Handel, was an immigrant. And coming up to date, perhaps the most important British innovation of the last decades was the discovery of graphene, by Andre Geim and Konstantin Novoselov at the University of Manchester. Both men were Russian born.

In the world of sport, where would British success have been in the last Olympics if it had not been for Jessica Ennis, whose father was a Jamaican born immigrant, and Mo Farah of Somalian birth?

Immigration is not always a good thing. The UK is small country and its capacity for accepting many more people is limited.

On the other hand, the UK, like much of Europe, faces a major demographic shock, as its indigenous population ages. Immigration may be all that stands between the UK experiencing a Japanese style lost two decades.

The real issue here, however, is that we rarely hear the pro-immigration arguments. Instead we send a van around East London, telling immigrants to go home. This is just plain nasty, not to mention utterly bizarre.

Many of the tabloid newspapers have become mouthpieces for the anti-immigration lobby.

David Cameron is courting the anti-immigration lobby, trying to score cheap points by saying: “We hate immigrants more than Labour.”

Our leaders are failing us. Mr Cameron is an intelligent and decent man, who is letting opinion polls dictate policy over his true beliefs. Tony Blair made the same error. At least that was one crime that we could never have accused Mrs Thatcher of committing.

Right now, our leaders should be leading, correcting myths, and promoting an objective discussion of this incredibly important topic. Instead they ride the surf created by an increasingly hysterical media, and it is very, very dangerous.

© Investment & Business News 2013

According to the OECD, US household gross debt to gross disposable income had fallen from 130.7 per cent in 2007, to just 107.9 per cent at the end of 2012.

According to the Fed’s latest US Financial Accounts, debt as a share of disposable income has fallen to 110 per cent, from 112 per cent at the end of last year.

At the same time US house prices have at last begun to rise, and both the Dow Jones and S&P 500 have recently hit all-time highs, which has pushed up the value of US assets. Paul Dales, Senior US Economist at Capital Economics, put it this way. He said: “The ratios of debt to net wealth and debt to assets have fallen to rates more in line with long-term trends.” He explained further: “Every $1.00 of debt is now backed by $6.30 of assets, whereas before the recession it was backed by $4.80 of assets.”

Okay, returning to OECD figures, US household gross debt to gross disposable income was just 96.4 per cent in 2000. So in comparison to that year, debt is still quite high. But the trend is clear. US households have seen their own balance sheets improve markedly.

When you think about it, the above data illustrates why the economy has struggled so much in recent years. Despite interest rates being at record lows, US households have engaged in some pretty drastic deleveraging. Economists who failed to spot the crisis in the making during the mid noughties, failed to grasp that US households had simply run out of puff, and that the combination of falling house prices and over indebtedness meant an extended period of readjustment was inevitable.

This adjustment may have a couple more years to run yet. But it is not unreasonable to assume that by the midpoint of this decade, the US consumer will be able to lead the US economy into a new growth period. In combination there are signs of companies moving their manufacturing back to the US, which is a trend that was predicted by the Boston Group some two years ago. Both Apple and Google, for example, have recently announced new products which, just like Bruce Springsteen, will be made in the USA.

In the UK we are seeing something similar, but on a smaller scale. UK household debt to income has fallen too. In fact it has fallen even more sharply than in the US, but then again it was much higher to begin with. OECD figures indicate that UK household gross debt to gross disposable income was 146 per cent at the end of 2012, around 25 percentage points down on the 2007 high, but still among the highest levels in the OECD. Maybe the OECD data is simply telling us the UK deleveraging process has longer to run. If the US will enjoy growth like it used to in 2015, maybe in the UK we will have to wait until, say, 2017.

But it is interesting to note that Tim Abbott, managing director of BMW UK operations, has forecast that the UK will be producing more cars than France by 2018, moving it into second place for car production in Europe.

So this is good news, albeit that the time frame is more stretched that we might prefer.

But good news can create bad news, and that is what the markets are worrying about. To find out why, read the next piece.

© Investment & Business News 2013

The data coming out of the US has been so very good over the last few weeks that I am beginning to think the unthinkable. The thing they some said can never happen, if you like, a reverse Black Swan; the economic crisis that descended on the US in late 2006/2007, which deepened with the collapse of Lehman Brothers in October 2008, and then acted as a catalyst for the rest of the world to enter a sustained crisis period, is drawing to a close. The economic crisis may be over or almost over. This is why and these are the lessons we can learn.

If I were to list all the positive data relating to the US economy over the last few weeks this article would drag on and on, but instead let me focus on the highlights.

Number one: and most obvious, we have the markets. The Dow Jones hit a new all-time high on Tuesday (28 May). The markets don’t always get it right – in fact they often get it very wrong, but it is evidence.

Number two: US house prices. They rose 7.2 per cent in the year to March, according to the Federal Housing Finance Agency. That was the biggest annual increase recorded since May 2006. In fact as of Q4 last year, US house prices were 24 per cent down from peak and, according to the latest OECD report, the ratio of average US house prices to average US income is 85 per cent of the long term average.

Number three: US consumer confidence. According to the Conference board, this hit a five year high in May.

Number four: the US fiscal deficit. Earlier this month, the Congressional Budget Office revised its estimate of the US deficit for this year downwards by $200 billion. It is now saying the deficit will be $642 billion. To put this in context, last year the deficit was $1.1 trillion. And if the estimate proves right, it will be the first time the US budget deficit was less than $1 trillion in five years.

Number five: US household debt. This reduced by $11 billion in Q1, and now totals $11.2 trillion, from $12.7 trillion in 2008. According to the IMF, US household debt to income has fallen from a ratio of around 1.3 in the mid-noughties to about 1.06 at the end of 2012. See page five of this report.     The OECD has drawn similar conclusions. See page 20 of this report.

Number six: US inflation was just 1.1 per cent in April. In fact prices dropped no less than 0.4 per cent month on month between March and April.

Number seven: US unemployment fell to 7.5 per cent in April, the lowest level since Barack Obama became US President. Since last November the rise in US non-farm payrolls has been in excess of one million. The next jobs report is out at the end of next week (7 June), and Capital Economics predicts a 175,000 rise in non-farm payrolls. There are signs that companies are moving manufacturing back to the US as wages rise in China. Talk is that the much hyped new Google Android phone will be made in the USA.

Number eight: earnings at US banks in the first quarter of 2013 were $40.3 billion, which is the highest ever recorded. Over the past 12 months, US banks have maintained a capital tier one ratio of 13.3 per cent; that too is a record high.

Okay, so why? I can think of three key reasons. The first is creative destruction. Softer rules regarding bankruptcy, and the fact that when a home in the US is repossessed, any shortfall between the mortgage and the value of the home is covered by the bank, have all helped the US get the pain over with much faster. The second is less austerity. Contrast the US policy towards austerity with the UK and Eurozone. The third reason is shale gas, which has pushed down the cost of energy in the US.

The US still has problems. Household debt to disposable income is still higher than it was in 2000. See the aforementioned OECD report. I am very worried about the awful levels of income inequality in the US. Maybe if manufacturers do start moving from China to the US this issue will be partially addressed. I think economist Joseph Stiglitz is right when he says US student loans has the potential to be a crisis on a scale comparable to the sub-prime debacle.

Don’t think that because I am optimist on the US, I feel the same way about Europe. The continent is stuck in depression. I don’t see this ending any time soon, and I worry about the global implications of the Eurozone adopting a Germanic type export-led model. There is even a chance that an escalation in the Eurozone crisis could hit the US.

As for the UK, I think the jury is out. The UK economy usually follows the US, albeit with a time lag. But austerity, the fact that our main export market is in depression, the fact that real wages are still falling, and that the UK is not likely to see a US style shale gas revolution are reasons for caution. But on the other hand, house prices are going up. Whether you think the UK’s reliance on rising house prices is sustainable or not, the fact is that in the short run, in Blighty, rising house prices are often associated with rising GDP.

© The Share Centre Blog 

Yes, it was no typo. According to data produced by the OECD, Greece will sit alongside Germany as one of the most competitive economies in Europe within two years. Mind you, the data does rather assume Greeks are about to make enormous sacrifices.

See if you can guess which country is expected to be left behind?

It all boils to unit labour costs. That is how much it costs for labour to produce things. And Greece is set to see unit labour costs plummet, a bit like Icarus falling from the sky. Except, of course, unlike Icarus, Greece never really got off the ground in the first place. Maybe it would be better to say a bit like Orpheus falling into the underworld.

Before we go any further, let’s come clean. The OECD data only relates to Germany, France, Italy, Spain, Portugal, Ireland and Greece. Just bear that in mind.

To begin let’s take a look at 2008 and compare it with the year 2000. Over the nine year period German unit labour costs actually fell. In contrast they were up 18 per cent in France, 26 per cent in Portugal, 30 per cent in Italy, 35 per cent in Spain, 36 per cent in Greece, and by 41 per cent in Ireland. That probably won’t surprise you; the first eight years felt like boom time writ large in Ireland.

In 2009, Ireland began its painful adjustment process. In 2009 its unit labour costs fell 4 per cent. In Greece they rose 8 per cent.

That was the worst point; the point when the gap between Germany and Greece relative to the gap in 2000 was at its highest.

Now let’s forward the clock to today. The OECD estimates that between 2008 and 2012 unit labour costs in Germany rose by 8 per cent. In Greece between 2009 and 2012 they fell by a staggering 15 per cent.

But the OECD has also engaged in some crystal ball watching. It forecasts that over the next two years Greek unit costs will fall another 13 per cent.

So this is the picture that the OECD expects to see at the end of 2014. Starting from a base of 100 in 2000 for all seven countries, it expects unit costs in 2014 to be 113 in Germany, 127 in Spain, 130 in France, 115 in Greece, 122 in Ireland, 140 in Italy and 125 in Portugal.

In short, relative to 2000, Greece is expected to be second only to Germany. This may create the foundation for recovery. But getting there will be agony. The IMF and EU have agreed to support Greece so that its public debt will be less than 110 of GDP in 2022. The truth is, however, that as austerely bites and real wages fall, reducing Greek debt to a mere 110 per cent of GDP will be a Herculean task. More debt will have to be written off.

The OECD data also suggests that the country at the bottom end of the scale will be Italy. But not so fast… The data may have been distorted by changes in the way the Italian black economy was measured; in short the data in 2000 may not be accurate.

If the data proves right, the country that will see the biggest rise in unit labour cost relative to Germany between 2008 and 2014 will probably be France.

Of course falling unit costs is not necessarily a bad thing. Think about it. If unit labour cost falls across the world, does that not mean aggregate demand per unit will fall too?

Sure, it’s good thing if productivity per hour rises, but not so good if workers are paid less. Assume the world only produces apples. And each worker is paid two apples an hour, and picks two apples an hour. Demand equals supply. But let’s say productivity rises, and workers produce three apples per hour, but their pay stays the same. That means the world produces more apples that its labour force can afford to buy.

So rising French unit labour costs may not be a bad thing if this happens across the board. But the trouble is that France is losing out relative to other countries.

That’s why driving up competitiveness through falling real wages is not a positive development for the global economy.

©2012 Investment and Business News.

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The search for green shoots continues.

Last week we said that evidence of a UK recovery is mounting: industrial production saw its biggest jump in 25 years in July, numbers employed in the three months to July rose 236,000, the OECD predicted a pick-up for the UK next year, and the CEBR forecast that for the first time since 2009, wages will rise at a faster pace than inflation in 2013.

It is not hard to be cynical. Sure employment was up, but much of the rise was down to an increase in part-time workers. The industrial production surge may have been down to no more than making up for lost production the month before because of the Jubilee celebrations. As for what the forecasters say, never forget the words of JK Galbraith: “The only function of economic forecasting is to make astrology look respectable.”

But now Mervyn King has joined the bull set. In an interview on Channel Four, he said: “I think the next quarter will probably be up. I think we’re beginning to see a few signs now of a slow recovery, but it will be a slow recovery.”

So it’s parade of promising news. But what is that? Oh dear, it’s rain.

Not so long ago, many top economists laughed off the prospects of the UK falling into another recession, not because they were especially positive, but, they argued, because output was already so low that it seemed unlikely it could contract further.

The truth is that right now, the UK’s output is around 4 per cent below peak. This is the longest downturn ever recorded. It will surely be several years before the UK’s output is 4 per cent higher than present. We are now around four and half years into the downturn, perhaps a touch longer.  A lost decade looks like a real danger.

©2012 Investment and Business News.

Investment and Business News is a succinct, sometimes amusing often thought provoking and always informative email newsletter. Our readers say they look forward to receiving it, and so will you. Sign-up here

This is no wind up. The last week or so has seen hints. The green shoots may not be big, peeking above the surface like scared mice, but they have been there all the same. So is this for real? Has the recovery begun?

Yesterday on the Andrew Marr Show former Prime Minister John Major said: “Recovery begins from the darkest moment. I’m not certain, but I think we have passed the darkest moment.”

So what’s the evidence?

Earlier this month, data from the ONS revealed another rise in employment – this time up 236,000 in the three months to July. Elsewhere, data on July’s industrial production indicated the biggest jump in this sector for 25 years. The OECD took a look at the G7 and the four big emerging economies (BRICs) and saved its most bullish words for the UK and Brazil, which were the only countries that it said were due to see a pick-up next year.

The round of good news was completed by the Centre of Economics and Business Research (CEBR), which has forecast that 2013 will see the first rise in real incomes for UK households since 2009.

Looking beyond the UK’s borders, markets were c*ck-a-whoop. Both the US Fed and the Euro regions’ central bank – the ECB – have announced QE (or in the case of the ECB QE ish), and at last they are saying central bankers are taking decisive action. A report from ‘Financial Times Deutschland’ suggested that unit labour costs have fallen by 15 per cent in Greece since 2010, with significant falls also seen in Spain and Ireland. Greece saw its current account deficit fall by 54 per cent between 2007 and 2011.

Finally maybe policy makers are learning lessons. Vince Cable is agreeing to relax labour laws in the UK. David Cameron wants to cut down on red tape, and make it easier to gain planning permission. He wants to see an end to dithering.

Then there is the funding for lending scheme.  This is an idea that really seems to have struck a chord across the world, so much so that some economists in the US are now urging the Fed to announce a similar idea.

And finally, the World Economic Forum has released its latest league table showing the world’s most competitive countries. And guess which country moved from number ten on the chart to number eight? Yes, that’s right the UK. The usual suspects did better: Switzerland, Singapore, Finland, Sweden and the Netherlands. But of the G7 only Germany in sixth spot and the US in seventh scored higher.

Recessions are bad, of course they are, but they can have a cleansing effect. They can correct bad habits, get rid of bad ideas, and create economies that are more focused on ideas that work. The UK has had a torrid few years, but maybe it is now set to benefit from the correction.

Well is it? Read on…