Smaller firms could boost economy if more like German counterparts, report says

June 21, 2018

The gap underlines official figures showing that UK productivity fell in the first quarter of the year, said the report.

Smaller firms could add billions of pounds a year to the UK economy if they were as productive as their counterparts in Germany, according to a report.

Research for NatWest showed that employees in small to medium sized enterprises (SME) in the UK  generate £147,000 worth of output per year on average, less than half of those in Germany.

The gap underlines official figures showing that UK productivity fell in the first quarter of the year, said the report.

Even though more than two-thirds of SME decision makers believe improving productivity is important,  two-fifths do not know what productivity means in practice, making it difficult for them to identify the steps to improve, said NatWest.

The research found more than half of German SMEs offer employees the ability to work flexibly, while 44% provide clear career development and guidance, seen as important measures to boost productivity.

Alison Rose, chief executive of NatWest Commercial and Private Banking, said: “From talking to thousands of our business customers every year, we know that many small to mid-size businesses struggle to understand how best to improve productivity.”

Source: Shropshire Star

Shock manufacturing slide casts doubt on UK economy’s bounceback

June 12, 2018

British factories had their worst month in five-and-a-half years in April, suggesting the economy’s weak start to 2018 has persisted and lowering the likelihood of the Bank of England raising interest rates again any time soon.

Sterling slid as data showed the biggest fall in factory output since 2012 due to tepid demand at home and abroad.

The Office for National Statistics also said Britain posted its biggest trade deficit since September 2016.

“The rebound in GDP as a whole in Q2, if there is one, could be pretty subdued and it certainly questions the likelihood of another rate increase in August,” Investec economist Philip Shaw said.

Britain’s economy slowed sharply last year, even as much of the rest of the world picked up speed, as the 2016 Brexit vote left consumers with higher inflation and companies turned cautious about investment. Things got worse in early 2018 but the BoE said the slump was probably mostly due to cold weather.

Monday’s figures did little to support comments last week by BoE Deputy Governor Dave Ramsden who said data until that point suggested the economy’s weak start to 2018 would probably prove temporary.

The BoE is looking for evidence that the economy is on a firmer footing before it resumes raising rates.

Britain’s economy probably grew only 0.2 percent in the three months to May, the National Institute of Economic and Social Research think tank said.

Manufacturing output dropped by 1.4 percent in April after a 0.1 percent decline in March, the biggest month-on-month fall since October 2012, the ONS said.

The decline was bigger than any of the predictions in a Reuters poll of economists, and reflected lower production of steel for use in infrastructure and electrical machinery.

EXPORT WORRY

Higher oil production limited the monthly fall in the broader measure of industrial output. But annual output growth of 1.8 percent was weaker than all forecasts.

Business surveys last week suggested official data for May could show an upturn.

Weak data in Britain were in parallel with disappointing figures from the euro zone after strong growth at the end of 2017.

“But there does seem to be something more insidious going on — perhaps a lack of confidence across industry due to trade concerns,” Shaw said.

U.S. President Donald Trump stunned allies on Sunday by backing out of a joint communique agreed by Group of Seven leaders in Canada that had mentioned the need for “free, fair, and mutually beneficial trade”.

Britain’s goods trade deficit rose unexpectedly to 14.0 billion pounds ($18.8 billion), the second widest on record, hit by falls in exports of aircraft, pharmaceuticals and machinery.

British trade minister Liam Fox said the figures looked better on an annual basis.

“Far from the gloom some people report, today’s trade figures show in the year to April 2018 the trade deficit narrowed by 6.7 billion pounds as overall exports rose by 7 percent,” he said in a statement.

The figures also showed the construction sector failed to rebound. Output rose 0.5 percent month-on-month in April, undershooting all forecasts in the Reuters poll.

April capped the weakest three months for construction since mid-2012, and a fall in first-quarter construction orders outside the housing sector suggested little upturn soon.

“The construction industry dashboard is now a sea of warning lights,” Blane Perrotton, managing director of property consultancy Naismiths said.

Reuters Graphic
Source: UK Reuters

A guide to the top ten world economies

June 2, 2018

The world’s largest economies form the foundations of global growth and their importance cannot be understated. We have a look at the top ten economies in the world and what keeps them moving.

‘We are moving toward a global economy. One way of approaching that is to pull the covers over your head. Another is to say: it may be more complicated – but that’s the world I am going to live in, I might as well be good at it,’ – Philip Condit, former president, chief executive and chairman of Boeing.

Over two-thirds of the world economy is concentrated in just ten countries, making them key to international markets and global growth. The rapid development in emerging markets is hastily changing the landscape so that nations like China and India are overtaking the developed nations, such as the US and those in Europe, who have established themselves as integral cogs in the world engine.

Having compiled data from the International Monetary Fund (IMF), the World Bank, the Index of Economic Freedom, the Observatory of Economic Complexity and national databases, we have a look at the top ten economies:

What are the top ten economies in the world?

According to the IMF, the top ten world economies according to gross domestic product (GDP) at current prices in 2017 were as follows:

Economy 2017 GDP (trillions) % of world economy YoY output change
US
$19.39 24.3% 2.30%
China
$12.01 15% 6.90%
Japan
$4.87 6.1% 1.70%
Germany
$3.68 4.6% 2.50%
UK
$2.62 3.3% 1.80%
India
$2.61 3.3% 6.70%
France
$2.58 3.2% 1.80%
Brazil
$2.05 2.6% 1%
Italy
$1.94 2.4% 1.50%
Canada
$1.65 2.1% 3%
World
$79.87 100% 3.80%

(Source: International Monetary Fund, GDP based on current prices. Output change from ‘World Economic Outlook: Cyclical upswing, structural change’)

1. The US economy

Although the US economy is dominated by the services sector, accounting for about 80% of GDP, the country is still one of the biggest manufacturers in the world and known for expertise in medical, aerospace and military equipment. It is also one of the leaders when it comes to research and development.

Economic growth in the US has been steady in recent years, comfortably outperforming the UK and eurozone. Real estate, financial and insurance services, and health and social care are some of the country’s biggest industries.

An ever-strengthening jobs market has been at the heart of the Federal Reserve’s (Fed’s)debate over when to raise interest rates and, while wage growth has not been as strong, it is expected to pick up as more people become employed, tightening the availability of staff and hopefully pushing up wages.

The election of US President Donald Trump in late 2016 has seen the government focus on overhauling the tax system, cutting red tape and reviewing trade policies, particularly with its biggest trading partner China.

Population: 324 million

2017 GDP per capita (current prices): $59,500

Trade balance: ($1.38 trillion)

Top exports: Refined petroleum, cars, planes, helicopters/spacecraft, gas turbines

Top destinations for exports: Canada, Mexico, China

Top imports: Cars, crude petroleum, computers, packaged medicaments

Top origins of imports: China, Mexico, Canada

National currency: US dollar

Major stock exchanges: New York Stock Exchange (NYSE), National Association of Securities Dealers Automated Quotation System (NASDAQ)

Major indices: S&P 500Dow JonesNASDAQ

2. China’s economy

China is the world’s factory and is by far the biggest manufacturer of goods. Manufacturing is at the heart of the economy, boosted by its role in the global supply chain, which sees it finish-off and export a swathe of partly-finished goods that are imported into the country, particularly from other Asian neighbours. China is expected to overtake the US as the world’s biggest economy as early as 2029.

Still, the behemoth’s agricultural sector is one of the biggest employers in the country. However, the country’s services industry is gradually growing as the country shifts away from producing cheap goods for the world.

Under President Xi Jinping, who has recently consolidated power in the country, China is moving from ‘Made in China’ to ‘Made by China’ by accelerating its technological abilities so it can compete with more advanced Western and Asian countries. While China is still very protective about allowing foreign firms entry into the country, they are increasingly opening up to the rest of the world and is investing in other countries in areas like Africa.

Read more about how a US-China trade war could impact markets

While growth still outshines the rest of the world, it has slowed in recent years, but data from China can still be regarded as unreliable.

Population: 1.4 billion

2017 GDP per capita (current prices): $8640

Trade balance: $1.88 trillion

Top exports: Computers, broadcasting equipment, telephones, integrated circuits

Top destinations for exports: US, Hong Kong, Japan

Top imports: Integrated circuits, crude petroleum, gold, iron ore, cars

Top origins of imports: Hong Kong, South Korea, US

National currency: Renminbi

Major stock exchanges: Shanghai Stock Exchange, Shenzhen Stock Exchange

Major indices: Shanghai Composite Index, Shenzhen Stock Exchange Component Index

3. Japan’s economy

Japan is regarded as the original high-tech economy and at the forefront of Asia until it was overtaken by China in 2010. Automobiles, electronic equipment, shipbuilding, pharmaceuticals and banking are all prominent industries in Japan.

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Many of Japan’s modern-day problems centre on demographics, with an aging population and low birth-rate holding back growth. Japanese Prime Minister Shinzo Abe has been in power since 2012 and has introduced ‘Abenomics’ to rejuvenate the economy through monetary easing, flexible fiscal policy and structural reform.

Population: 127 million

2017 GDP per capita (current prices): $38,440

Trade balance: $259 billion

Top exports: Cars, vehicle parts, integrated circuits, industrial printers

Top destinations for exports: US, China, South Korea

Top imports: Crude petroleum, petroleum gas, packaged medicaments, computers

Top origins of imports: China, US, South Korea

National currency: Yen

Major stock exchanges: Tokyo Stock Exchange

Major indices: Nikkei 225, Topix

4. Germany’s economy

Germany is the kingpin of the European Union, both politically and economically. The German economy is fuelled by exports of high-quality goods. The automotive industry is the engine of the country, followed by the manufacturing of machinery and chemicals.

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Although Chancellor Angela Merkel has remained the country’s long-standing figurehead, her position has been weakened since her party failed to secure a majority in the 2017 elections, leading to a coalition with the opposing Social Democrats.

Population: 82 million

2017 GDP per capita (current prices): $44,500

Trade balance: $494 billion

Top exports: Cars, vehicle parts, packaged medicaments, planes, helicopters/spacecraft

Top destinations for exports: US, France, UK

Top imports: Cars, vehicle parts, packaged medicaments, computers

Top origins of imports: Netherlands, France, Belgium

National currency: Euro

Major stock exchanges: Deutsche Börse

Major indices: DAX

5. The UK economy

The UK economy has proven more resilient than most expected following the EU Referendum vote in June 2016, but Brexit will continue to be the dominant feature of the country’s economy in both the short and medium term.

Read more on the potential economic impact of Brexit

The UK economy is heavily centred on services, accounting for about 80% of its entire economic output. This includes sectors like hospitality, distribution, transport, communication, and business services and finance (the latter of which has accounted for the bulk of growth in overall services output in recent decades). For context, manufacturing represents just 10% of total output while construction accounts for 6%.

Learn more about the major currency pairs

Population: 66 million

2017 GDP per capita (current prices): $39,730

Trade balance: ($589 billion)

Top exports: Cars, gold, packaged medicaments, gas turbines

Top destinations for exports: US, Germany, France

Top imports: Gold, cars, packaged medicaments

Top origins of imports: Germany, China, US

National currency: Sterling/pound

Major stock exchanges: London Stock Exchange (LSE)

Major indices: FTSE 100FTSE 250

6. India’s economy

Aside from its neighbour on the other side of the Himalayas, India is the other rising economic power expected to move up this list of top ten economies in the not too distant future. India’s economy is very diverse, from traditional village agriculture to computing.

Services represent about two-thirds of the country’s output, boosted by its mastery of the English language to aid the export of business, IT and communication services. Still, the service sector employs less than a third of the national workforce.

Prime Minister Narendra Modi has provided stability since taking office in 2014, and while foreign policy has improved, the government has had issues with its currency after it scrapped high-value rupee notes causing problems around the country.

Read about the most overlooked currency pairs

Population: 1.3 billion

2017 GDP per capita (current prices): $1980

Trade balance: ($183 billion)

Top exports: Refined petroleum, diamonds, packaged medicaments, jewellery, gold

Top destinations for exports: US, United Arab Emirates (UAE), Hong Kong

Top imports: Crude petroleum, diamonds, gold, coal briquettes, telephones

Top origins of imports: China, US, Hong Kong

National currency: Rupee

Major stock exchanges: Bombay Stock Exchange, National Stock Exchange of India

Major indices: BSE Sensex, NSE Nifty

7. France’s economy

France is the other leading nation in the European Union and currently led by Emmanuel Macron, the country’s youngest president since the establishment of the Fifth Republic.

Amid high government spending weighing on public finances and a higher-than-average unemployment rate, Macron is trying to reform the economy at a rapid pace, and not without its consequences. Efforts to restructure labour laws has prompted a series of strikes by public sector employees working in sectors such as transport, for example.

In addition to pharmaceuticals, chemicals and its expertise in aerospace and automotive manufacturing, tourism also plays a significant role in the French economy.

Population: 65 million

GDP per capita (current prices): $39,870

Trade balance: ($163 billion)

Top exports: Planes/helicopters/spacecraft, packaged medicaments, cars, vehicle parts

Top destinations for exports: Germany, Spain, US

Top imports: Cars, aircraft parts, crude petroleum, packaged medicaments

Top origins of imports: Germany, Belgium, Italy

National currency: Euro

Major stock exchanges: Paris Stock Exchange

Major indices: CAC 40

8. Brazil’s economy

Brazil, much like wider Latin America, has been bogged down in politics and scandals in recent years, holding back the country and the region’s potential. Still, Brazil is a formidable economy on the world stage and the leader of its bloc and has managed to outperform its neighbours.

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Despite its population being largely based on the coast and the fact it is home to the world’s largest rainforest, the country’s agricultural and industry sectors play second fiddle to services (like telecommunications or insurance). Services account for over two-thirds of the economy and the bulk of the remainder is comprised of sectors like petrochemicals, textiles and mining. Agriculture accounts for only a fraction of Brazil’s economy.

Population: 206 million

GDP per capita (current prices): $9890

Trade balance: $106 billion

Top exports: Iron ore, soybeans, crude petroleum, raw sugar, sulfate chemical woodpulp

Top destinations for exports: China, US, Argentina

Top imports: Refined petroleum, vehicle parts, packaged medicaments, telephones

Top origins of imports: US, China, Germany

National currency: Real

Major stock exchanges: B3

Major indices: Brazil 50 Index (IBrX 50)

9. Italy’s economy

While the country’s economy remains substantial it is quite split between an industrial-focused north and a less developed south, which is more based on agriculture. This is has been one of the primary causes for the political instability that has made Italy somewhat of a problem child for the European Union, and stoked fears over the future relationship between Italy and the euro (which is particularly prominent amid Brexit and following the breakdown between the EU and Greece).

Population: 61 million

GDP per capita (current prices): $31,980

Trade balance: $152 billion

Top exports: Packaged medicaments, cars, vehicle parts, refined petroleum

Top destinations for exports: Germany, France, US

Top imports: Cars, crude petroleum, packaged medicaments, petroleum gas

Top origins of imports: Germany, France, China

National currency: Euro

Major stock exchanges: Borsa Italiana

Major indices: FTSE MIB

10. Canada’s economy

Canada has closely followed a similar economic stance as its larger neighbour to the south (where about two-thirds of all exports go), but after Prime Minister Justin Trudeau’s Liberal Party broke a decade-long Conservative rule in 2015, the country is shifting more toward the likes of environmental policies and shifting away from its large fossil fuel industry (such as oil sands). Forest products like wood, mining, and oil and gas all play formidable roles in the Canadian economy.

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Still, the country has a significant service industry encompassing a growing technology industry (which is concentrated in its major cities) that is continuing to thrive over manufacturing and resource sectors.

Population: 36 million

GDP per capita (current prices): $45,080

Trade balance: ($94.9 billion)

Top exports: Cars, crude petroleum, gold, vehicle parts

Top destinations for exports: US, China, UK

Top imports: Cars, vehicle parts, computers, delivery trucks

Top origins of imports: US, China, Germany

National currency: Canadian dollar

Major stock exchanges: Toronto Stock Exchange

Major indices: S&P/BMV IPC

Source: IG

UK productivity picks up strongly in second half of 2017

April 7, 2018

Britain recorded its strongest productivity growth in more than a decade in the second half of 2017, helped by a strong fourth quarter, but economists said the improvement was unlikely to prove a turning point for one of the economy’s key weak spots.

Productivity growth in most advanced economies has been poor since the 2008 financial crisis and in Britain it has been particularly weak, growing by less than 2 percent in total over the past decade and acting as a major drag on wages.

Friday’s figures from the Office for National Statistics show a marked improvement from the previous trend.

Economic output per hour worked rose by 0.7 percent in the fourth quarter of 2017, above its long-run average though a shade less than first estimated in February.

Third-quarter productivity growth was revised up slightly to 1.0 percent.

Together the two quarters show the strongest growth since the second half of 2005.

However, the gains were largely due to a sharp fall in the number of hours worked – something that proved a temporary phenomenon when it last took place in 2011.

Official forecasters said last month they assumed the improvement seen in preliminary data would not last.

“The sharp improvement in productivity in the second half of 2017 came amid a surprising drop in hours worked over both the third and fourth quarters … and may have overstated the underlying improvement,” Howard Archer of economic consultancy EY ITEM Club said.

British economic productivity is similar to Canada’s but around 25 percent weaker than in the United States, Germany and France. Economists blame a mix of low business investment, bad management and poor technical skills training for the shortfall.

Damage to the financial sector from the 2008-09 crisis, a fall in North Sea oil production and a big rise in the number of people in relatively low-paid work have also been identified as factors by the Bank of England and academic researchers.

Persistently weak productivity growth is a big reason why the BoE has said it will probably need to raise interest rates over the next few years, despite what it expects to be a sluggish economy as Britain leaves the European Union.

Most economists expect the BoE to raise rates next month for only the second time since the financial crisis.

Friday’s data is unlikely to shift the BoE’s view. The ONS also released figures showing businesses had to spend more on employees for a given amount of output as unemployment remained around its lowest level since the 1970s.

Unit labor costs were 2.1 percent higher than a year earlier in the fourth quarter of 2017, their biggest annual rise since the first three months of the year.

“This matters because it is a hint that domestically generated price pressures are building, which could support the case for further withdrawal of monetary policy accommodation,” said Alan Clarke, an interest rate strategist at Scotiabank.

Source: UK Reuters