World Growth is Deflating ...
Should you be planning for the next recession? This was the theme of our Quarterly Economics Presentation in association with Brabners this week. This is the event hosted in Manchester and Liverpool in which 200 slides flash by in just 40 minutes. No wonder heads spin, as we cover the world economy and the UK in some detail.
The audience warmed to the cheery theme. The world is not heading for recession as we might traditionally think of such. Central banks will not be prone to act to curb excess in the economy. We normally think of excess demand leading to rampant inflation and a soaring trade deficit, or we may think of financial shocks related to irrational exuberance in equity or debt markets. Not this time, or not yet at least.
There are major problems ahead for the US economy and the twin deficit dilemma in the medium term. There will be problems generated by the price bubbles created in the sovereign debt market, which will affect the Dollar and the financial markets around the world at some stage.
For the moment the world economy is not facing a sudden shock to the economy. The world economy is facing an insidious slow down in growth and trade, as a result of the uncertainty generated by Trump and Tariffs, Boris and Brexit.
Central banks pushing rates to the zero bound and beyond will be powerless to act. Central governments will be limited in their capacity to introduce fiscal expansion.
In the US. an economy which should be growing at 3% this year, is now penciled in for growth of around 2.3%. Forecasts for growth in China, Japan, and the EU are lowered, as world trade growth slows and manufacturing output growth is damaged. India, Australia, Singapore, Taiwan all face a reduction in growth forecasts for this year and next.
This week, the U.N warned of a serious of global recession. When China addressed the UN global assembly the message was stark ...
"The lessons of the Great Depression should not be forgotten. Tariffs and provocations of trade disputes, which upset global industrial and supply chains, serve to undermine the multilateral trading regime and global economic and trade order. They may even plunge the world into recession."
So should we be planning for the next recession? Not just yet. Future fortunes will be determined by what happens next in the White House ...
Impeachment looms ...
Impeachment is coming for the President. The trigger will be the telephone conversation with President Zelensky of the Ukraine. No sooner had Trump put down the receiver in the White House residence, alarm bells were ringing among the dozen or so officials monitoring the call.
Officials listened in with growing dread. The President was rambling and off script. Trump asked Zelensky for a favor. A simple request to dig up some dirt on Joe Biden and family in exchange for military aid.
For Trump this was neither unusual or abnormal. For others, including Nancy Pelosi, this was a clear abuse of privilege. Officials in the White House tried to "bury" the transcripts. Trump had them released and admitted he had sought some information on Biden and had suspended military aid, to pressure the President of the Ukraine into action. So what's wrong with that?
The matter had come to light via a whistle blower within the camp. A CIA plant, an expert on Ukraine had revealed the content of conversations. Nancy Pelosi, the Democratic Speaker of the House was forced to act.
The calls for impeachment in Congress could no longer be ignored.The impeachment process has begun. For Trump, "I had a simple and very nice call with the new President of the Ukraine, it could not have been better or more honorable. It was very legal and very good. It was a perfect conversation with Ukraine President".
Of course it was. Now comes the process of diversion and confusion. The Republican surrogates have been unleashed. The Trump Twitter storm continues. Trump is cornered. Anthony "The Mooch" Scaramucci has warned in the end Trump will turn on everyone, even the American people to secure his position.
At close of week, came the hints, the administration is considering a ban on dollar investments in China and a ban on US listings of Chinese companies, including Alibaba, Baidu and JD. com. Compulsory de-listing could affect over 150 companies with a combined market cap of $1.2 trillion dollars.
Markets trembled on the news as the focus moves away from an innocent phone call with a President of a place far away from Washington ...
UK Borrowing Plans Up in the air ...
Good news for the Chancellor this week. Borrowing fell in the month August by £0.5 billion compared to prior year. Not so good really, revisions to the data added nearly £20 billion to the borrowing requirement as a result of changes to the treatment of student loans and public sector pensions.
Borrowing for the year as a whole is now likely to be over £50 billion. Borrowing plans are in the air as debt is set to exceed the 2% GDP target.
The spending plans for the new administration will push debt levels to over £70 billion in the short term. That's assuming Boris Johnson remains in office.
The Prime Minister lost a further vote in the House this week. There will be no parliamentary recess to accommodate the Conservative party conference. Members of Parliament are miffed about prorogation and Johnson's parlance. Talk of the "Surrender Bill" and "Betrayal of the People" is not helping the Prime Minister's popularity campaign.
It is unlikely a deal will be secured with the EU, the government will be obliged to ask for an extension into the New Year. A party of national unity may emerge to effect the transition. Jeremy Corbyn has indicated he would be prepared to step aside. Ken Clarke is the bookies favorite to assume the role of leader.
Boris Johnson has become embroiled in a scandal of his own this week. Impeachment may well follow. There is nothing in an unwritten constitution to prevent that ...
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 FREE weekly updates on the UK and World Economy.
The material is based upon information which we consider to be reliable but we do not represent that it is accurate or complete and it should not be relied upon as such. We accept no liability for errors, or omissions of opinion or fact. In particular, no reliance should be placed on the comments on trends in financial markets. The presentation should not be construed as the giving of investment advice.