"Bags of Time" says Boris ...
The Office for National Statistics joined the ranks of "Project Fear" doom mongers this week. The latest data on GDP growth suggested the economy moved into negative territory in June with ominous implications for the rest of the year.
“GDP contracted in the second quarter for the first time since 2012. Manufacturing output fell back after a strong start to the year, with production brought forward ahead of the UK’s original departure date from the EU.
“The construction sector weakened after a buoyant beginning to the year, while the often-dominant service sector delivered virtually no growth at all." It all sounded pretty gloomy with fears of recession returning as the Brexit deadline nears."
In reality growth in the second quarter was 1.3% compared to 1.8% in the first quarter of the year. Service sector growth was up by 1.6%, the construction sector expanded by 1.4%. Manufacturing output fell by almost 1%. Stock building in the first quarter was reversed in the three months to June. The trade deficit on goods and surplus was extinguished as imports fell.
Boris Johnson has offered reassurance there is still "Bags of Time" to secure an agreement with the EU. That will come as a surprise to many in his own cabinet. The pound closed below $1.21 against the dollar. Ten year gilts closed below 0.5%. Markets are adjusting to the idea of Dollar parity in the event of a no deal.
For government, the clock is ticking. Michael Gove has a count down clock on the wall of his office to focus the mind. It is next to his ideas box ... worried about a banking crisis ... a Bank Holiday the solution ... worried about panic buying, rationing the obvious recourse.
Johnson has created a survival cabinet. Gove is the fall guy, Dominic Raab is in the Foreign Office to ensure Johnson's FO tenure looks great. Jacob Rees-Mogg has been distanced from the ERG, content with the new role as stand up comedian in the People's parliament.
Dominic Cummings has is the "attack dog" people love to hate. Taking the flack for the Prime Minister offering comfort, reassurance and confusion in equal order. Why worry about a vote of no confidence when people have little confidence in the administration anyway, the message.
Let's call a snap election in a "People versus Politicians" vote. No one will know what that means. Special briefings to be offered to Brexiteers and Remainers to dress as round-heads and cavaliers at the hustings. The government is preparing for an election, in the event of a "no deal no deal." Johnson really wants a deal, but the way to get a deal is to convince the EU, we don't want a deal.
It's a sort of Brer Rabbit strategy. Convince the wily fox, we really want to leave the EU because we really would like to stay ... not sure the analogy works or the strategy for that matter ... we could end up tossed into the Channel, reliant on French fishermen for rescue ...
Job Done ... Trump's on Holiday ..
Trump is off on holiday for ten days. Camp David is off limits. The President needs to spend more time with his golf clubs. Job done. The Nobel peace prize virtually assured, the President offered to mediate in Kashmir, annihilate Afghanistan, go to war with Iran and cancel the nuclear weapons deal with Russia.
Military maneuvers in South Korea, for which the Koreans are paying of course, led to rocket launches in the North. Not to worry, the President received another beautiful letter from Kim Jong-un. It was three pages long, one page for every rocket fired. The President received confirmation planning permission had been secured for the Trump Condos on the South East coast of North Korea. The beach area has previously been used for weaponry drills and ballistic weapons launches. Yes in this way, peace is brought to the world.
Chats with China are not going quite so well. Trump's principal adviser is Peter Navarro, author of "Death by China" and "The Coming Wars [with China]". That can hardly help. The coming wars with China is subtitled, "Where They Will Be Fought and How They Can Ce Won". Americans are hoping no one in Beijing has read it.
This week, Trump denounced the "Renminbi Runners" as currency manipulators. The Chinese administration pegged the Yuan lower against the dollar in response. Exports to the USA are falling. Tariffs for which American consumers are paying, the cause. U.S. farm exports to China are stalled. China exports to the rest of the world are increasing. The Asean market offers growth beyond measure in the decades ahead.
This week Huawei announced proprietary software for mobile phones which will eliminate dependence on Google Android. Someone at Huawei is an avid Navarro reader.
Beijing is prepared for the break with Washington. Chinese requirements for farm and oil imports will find willing vendors around the world. The strength of the Dollar is an opportunity to off load the trillion plus holding of dollar bonds held. The monopoly of rare earth metal supplies will provide an opportunity to squeeze prices and destabilize the competitiveness of US high tech competition.
Trump has dropped the broadest possible hint that he is ready to dig in for the long term in the Washington’s trade war with China. He may have little option.
Trade talks are set to resume in September 2019. The stand off is expected to continue beyond the presidential election in November 2020. Meanwhile the overall trade deficit for Uncle Sam is increasing. Growth without imports, you just can't have it both ways ...
That's all for this week, have a great weekend. We will be back with more news and updates next week!
The Saturday Economist
John Ashcroft publishes the Saturday Economist. Join the mailing list for updates on the UK and World Economy.
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