Economics Editor, The Sunday Times
Fascinating times economically and politically (lowest interest rates for over 300 years, first Speaker to resigning for over 300 years). Instability.
"A nasty hangover" after exuberance of the "nice" years.
2004-2007 strongest 4 year global GDP growth since early 70s.
UK 63 consecutive quarters of economic growth (but stable growth rather than a boom).
Brief rise and fall of sub-prime lending since 2000, problem was the
securitisation and
derivatives that magnified the default risk.
Leveraged buy-out (private equity) boom in 2007
All led to biggest financial storm in a century (events of Autumn 2008, Lehman trigger), crisis building for a year, lost confidence in
counterparties.
Commercial paper spread chart, like a heart monitor for economy, spike in Autumn 08.
US house prices still sliding (this was where it started); for resolution need
stability so that "toxic" debt an be properly priced by
the market.
Oil price has returned to earth as have other commodities (last revenge of the markets)
World economy unusual
position, first simultaneous advanced country
recession since WW2.
European industry hit hard, and very quickly after financial market meltdown.
Where are the green shoots? Media looking for them now, bored with doom and gloom stories.
Equities bounced a little, now priced for a recession (rather than depression).
China's stimulus package seems to be working (sharp growth in bank lending)
3 month
Libor spread is easing (but still much higher than normal)
UK Bank bailouts, initially
BoE reluctant and acted slowly at first, then accelerated with dramatic reduction base rates and
QE. Will take a lot of unwinding.
Are UK house prices still overvalued? Possibly, but market may be stabilising.
QE - hasn't yet fed through into lending growth, risk for inflation not yet apparent. Loss of lending capacity constraining recovery. Suppressed demand exists for residential and commercial lending.
Purchasing manager surveys improving, but still below critical 50 mark. e.g. Honda starting up production again.
IMF says global growth will return in 2010 and then recover in 2011, aligns with predictions for UK (
NIESR).
Unemployment is lagging indicator and will increase for some time.
Inflation risk? Recessions usually destroy inflation and it takes some time to recover.
(Govt) Debt legacy? Moore concerning, overhang until possibly 2030s to get back to 40% GDP ceiling. Tight squeeze on public sector spending, feast to famine, new govt may go even tighter.
All
govts respond to fiscal squeeze by slashing capital spending.
Time is great healer, domino effect of sovereign debt reduced.
Recoveries happen.
Oil and commodities price falls is equivalent to tax cut.
Fingers crossed.
"Skip index" - currently one in
DS's street, keep counting them!