Economic Round-Up – what does it all mean?*

Recent economic figures haven’t exactly helped if you’re a procurement person trying to predict the next 12 months in terms of likely movements in commodity prices, or indeed inflation in non-commodity goods and services, demand for finished goods or general global growth and performance.

On the surface, the UK appears to be climbing out of the second part of the double dip recession. Recent employment figures were promising, with unemployment falling by 50,000 to 2.53m in the three months to August, taking the jobless rate down to 7.9% from 8.1%. But the number of people in temporary or part-time work continues to grow, suggesting the total pool of work available may be being shared around more widely without fundamentally growing.

The third quarter UK GDP figures showed growth of 1.0% - promising, but if you strip out the effects of the unusual holiday pattern this year, underlying growth is more like 0.3-0.4%. And the analysis to date suggests that the London Olympics, whilst boosting employment in London particularly, and feeding into the better than expected GDP figures in the last quarter, may have had little long-term effect on the wider economy. Indeed, the overall number of visitors to the UK fell 7.5% year on year though the summer, as people other than Games attendees stayed away. There’s a very good analysis of the Olympic effect here from Citi.

Whilst UK GDP looks to be on the up, the recent International Monetary Fund forecast continued the more gloomy theme, downgrading their UK growth prediction from 1.4% to 1.1% for 2014 and their global forecast from 3.9% to 3.6%, with developing economies still stronger than "the west".

Confusion over economic affairs is also evident in the reporting of China. On the more positive side, China’s inflation rate dipped from 2% to 1.9% in September, leading to hopes of an easing in monetary policy, which should boost domestic demand and spur growth. But hang on, economic growth in China is down at 7.4%, below the magic 8% level – so isn’t that bad?

Well, not necessarily if it reduces inflationary pressures worldwide - for instance, economic slowdown in China has been one of the main drivers of weaker metals markets over the last year or so, although they recovered somewhat during the summer on the back of quantitative easing in the West (read Metal Miner for the most detailed coverage of those markets you’ll find anywhere!) but clearly too much of a slowdown in China could have serious knock-on effects elsewhere.

And while we’re on the subject of inflation, UK inflation also fell to 2.2% in September, the lowest for 3 years, but some forecasts see it rising quickly to around 4% by next summer as more food and energy price increases bite through the winter.

So the two biggest uncertainties looking ahead appear to be the Euro – still – and those inflation rates. If inflation does starts rising again on the back of what seem like inevitable food price increases in 2013, and perhaps more quantitative easing, then that could upset both economic forecasts and the political environment in poorer or less stable countries. And as for the Euro – things seem to have gone quiet just now, but don’t expect that to last!

* I haven't got a clue....

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  1. eSourcingSensei:

    Hi Peter

    This may be off-track – not sure – but we entered a state of financial instability sometime around 2008 with a number of significant banking/financial instituation crashes and this suddenly opened up a cascading downfall of many economies across Europe. Debt (personal) and the ease of obtaining such debt was blamed for much, alongside poor management/control within the financial institutions. People overtaken by greed making phenominally risky invetsments both individuals, private organisations and public instituations.

    We eventully enter a period of austerity – tighten up our belts, spend less save more take on less or zero debt – this was the message our government pushed out to us all……………so why does the UK Budget not reflect the same measures of control, why do we not see greater impact in the forecasts they put together………….the facts don’t lie on this one:

    2008 – Annul budget £576 Billion
    2012 – Annual Budget £688 Billion (part complete part forecasted)
    2015 – Forecast £729 Billion

    2012 is 19.4% Higher Spend forecast than in 2008 and 2016 is 26.5%

    This I presume would include all the sourcing initiatives that have taken place or are planned to take place across government procurement

    So I am a little more than reluctant to say we have turned a corner – there may be encouraging signs but unless there is some greater evididence in reducing the budgetry spend or at the very least halting this rediculous rise, I think it is going to be a very very very very long time before we start seeing the UK turning the financial corner in a meaningful way.


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