The saturday economist 16th june 2012

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In this issue : Page No. Saturday June 16th 2012

The week in review 2

World Bank and Global Economic Prospects 3

New “Funding for Lending” liquidity provisions 4

Manufacturing Output - April 5

UK Trade Figures - April 6

Oil Price Watch 7
John Ashcroft is Chief Executive
Latest Economic Indicators 8 of pro.manchester, a director of
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London School of Economics
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Check out www.johnashcroft.co.uk, Join me on LinkedIn, Twitter or Google+ PhD in macro economics from
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Saturday, 16 June 12



Saturday June 16th 2012
The Week in Review - manufacturing output is flat, the trade
figures disappoint again but the World Bank suggests there is
hope for the world.

Despite the problems in Euroland, the slow down in India, China and world trade, the
World Bank released a relatively upbeat assessment for the 2012 Global Economic
Prospects. World trade is expected to grow by 5.3% and world GDP will grow by a
respectable 2.5% despite negative growth in the Euro area.

The Governor of the Bank of England was not quite so positive at the Mansion House
Dinner on Thursday night. A night of long shadows and dark clouds would sum up the
oration, with dark clouds featuring six times in the twenty minute speech. Eventually, he
said, the storms from overseas will have passed over our shores and the economic
skies will begin to brighten. World trade to grow by over 5% in 2012

Slightly alarming - the new round of liquidity provision for banking with a “Funding for
Lending” programme. The Bank is planning to swap collateralised mortgage debt or
SME loans as security for T bills. The Extended Collateral Term Repo Facility will also
be brought into play and quickly. The Chancellor made a good speech, sitting next to
his speech writer and private secretary I can say little else. The £100 billion plan to
support bank lending into SMEs and Households may be better intentioned than
effected in the end. Is this policy planning or panic reaction. It’s planning for panic.

In other news this week, the trade figures and manufacturing output figures will
disappoint policy makers but come as no surprise to readers of the Saturday
Economist. Manufacturing output is flat and the trade figures just get worse. So what’s
new. The problems in Europe just a small part of the problem. JKA Britain “safe in the storm”

Check out www.johnashcroft.co.uk, Join me on LinkedIn, Twitter or Google+ Page 2




World Bank and Global Economic Prospects

Despite the problems in Europe, and the slowdown in India, China and
world trade, the World Bank produced a relatively upbeat assessment of
the world economy and prospects for growth.

World GDP is expected to grow by a respectable 2.5% compared to
2.7% last year and 3% in 2013. Growth in the developing economies will
grow by 3.6%, USA by 2.1% and Japan is expected to grow by 2.4%. In
Euroland negative growth of 0.3% is expected.

World trade will grow by 5.3% according to the Bank compared to just
over 6% last year and 13% in 2010. World trade to grow by 5.3%

Inﬂation will remain muted, sub 2% as commodity prices fall back after
the heady rise of 2010 and 2011. In the two years commodity prices have
risen by over 40% but are expected to fall by around 9% this year.

Oil prices will hold around the $100 dollar per barrel level over the next
three years, providing a little respite to the rate of change of energy
prices.

All in all a plausible scenario, the world is not coming to an end just yet!
World GDP by 2.5%





New Liquidity Provisions - long shadows and dark clouds

At the Mansion House Dinner on Thursday evening the Chancellor announced a
new round of “Funding for Lending” in an attempt to kick start a wider programme
of bank liquidity and lending to business, property and households.

Mervyn King spoke of the ugly picture developing in Europe with long shadows and
black clouds hanging over the UK economy. Mentioning dark clouds not once but
six times, the Governor is outclassing Nouriel Roubini (Dr Doom) “dark clouds are
gathering around the world”.

Liquidity, funding and capital are the major challenges for the banking system but
the governor made clear the bank is ready to stand as the lender of last resort
providing emergency liquidity provision to a banking system potentially distressed
by a Euro banking crisis. Markets are sceptical about the new scheme

The Chancellor announced a £140 billion lending scheme to businesses and
households which was met by little excitement in the markets. The scheme will do
little to kick start growth - the credit worthy are loathe to borrow and the not so
credit worthy cannot borrow anyway.

At Thursday night the announcements sounded more like a panic reaction rather
the policy planning. On reﬂection, this is planning for panic should the Euro crisis
erupt. Liquidity will be provided into the banking system but the attempt to kick start
lending will prove better intentioned than effected.

Funding for lending - borrow and thrive?





Manufacturing Output - April
Manufacturing output fell by 0.3% in April according to the Office for National
Statistics.

Output remains some 9% below the peak recorded in 2008 but some 6% above
the trough in 2009.

Despite capital goods growth of 4.6%, output of consumer non durables fell by a
similar amount. Consumer durables output increased by a modest 1.7%.

The largest contributions to the fall in manufacturing output were the manufacture
of food, drink & tobacco, which fell by 5.7 per cent, followed by other manufacture
& repair, which fell by 9.5 per cent. In contrast, the largest upward contribution
came from the manufacture of transport equipment, which rose by 8.8 per cent. Manufacturing output is flat ..

At best, on trend, the average rate of growth of manufacturing is just 1.5%. The
latest figures are a continual set back to an economic policy dependent on growth
in exports, investment and manufacturing.

The trade figures for April confirm the flaws in the policy as defined hence perhaps
the rush to get households borrowing more for the housing market. Housing and
Households the key driver of UK growth will fail to deliver until inflation falls,
earnings and real incomes are rising.

Down by 0.3% year on year.





UK Trade Figures - April Saturday June 16th 2012

The deficit on seasonally adjusted trade in goods was £10.1 billion in April,
compared with a deficit of £8.7 billion in March and a deficit of £25 billion in the first
quarter of the year.

Despite sluggish growth in the UK, the trade deficit is increasing as import growth
exceeds the growth of exports.

Are the problems in Europe to blame?
The deficit in trade in goods with EU countries widened by £0.3 billion to £4.9
billion in the month, compared with a deficit of £4.6 billion in March. Exports fell by
£0.9 billion (6.8 per cent) to £12.0 billion, and imports fell by £0.5 billion (3.0 per
cent) to £16.9 billion.
Trade in goods deteriorates
Over 50% of UK exports are still heading to Europe. The slow down in Euroland is
clearly affecting trade performance but the contribution is just a small part of the
overall problem.

The deficit on trade in goods with non-EU countries widened by £1.0 billion to £5.2
billion in April, compared with a deficit of £4.2 billion in March.

So much for the car revolution. Exports of cars and chemicals cited as a problem
as world trade slowed to just over 2% in the month.

As we have long argued, a policy dependent on sterling depreciation will fail to
bring about the improvement in the trade balance. The volumes in world trade the
real driver of export growth. As export growth stalls.




150 Saturday June 16th 2012
Oil brent crude closed at $97.60
last week
120

90
Oil Price Brent Crude $ Qtr Data

$ I II III IV
60
2010 76.35 78.37 77.49 87.28

2011 104.79 116.57 113.57 109.16
30
2012 118.83 109.00 110.00 115.00
Forecasts
0
Our forecasts more bullish
2004 2005 2006 2007 2008 2009 2010 2011 2012 than the World Bank $107
this year.





Latest Economic Indicators Saturday June 16th 2012

Indicator Period Latest Notes, next release Source
Inflation CPI April 3.0% ONS
Inflation RPI April 3.5% .. ONS
Inflation RPIX April 3.5% .. ONS
Earnings March 1.6% ONS
Retail Sales volume January 2.0% ONS
Retail Sales value January 4.4% ONS
Unemployment March 2.62 LFS Million trailing 3 months ONS
Unemployment % March 8.2% LFS trailing 3 month ONS
Claimant count April 1.59m Million ONS
PPIs output May 2.8% Manufacturing prices (output) ONS
PPIs input May 0.1% Manufacturing prices ( input) ONS
GDP growth Q1 2012 -0.3% ONS
Manufacturing April -0.9% year on year growth ONS
ONS : Office for National Statistics, LFS : Labour Force Survey




The Saturday Economist

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The saturday economist 16th june 2012

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The saturday economist 16th june 2012