WEEKLY COMMENT 20-12-2012
By Barry Edwards
In the UK the year of 2012 has not turned out to be as bad as many of us thought it was going to be even though we have gone through another official recession of two quarters of shrinking gross domestic product (GDP).
The Olympics transformed everyone’s doom and gloom into outright enthusiasm especially in London and the south east. Things are clearly not that rosy in the north but in general there is an air of confidence beginning to flourish although it is still very tenuous. Any major economic disaster story could wreck that feeling but at the moment there does not appear to be anything on the horizon that could be that threatening.
Mainland Europe has settled down and the politicians are slowly addressing the fundamental problems associated with the euro currency by starting to create the regulatory organisations to manage the euro currency effectively. The politicians are beginning to form agreement about how these new organisations should be controlled and arrange the funding for them to operate properly.
The financial commentators are much less critical and some are quite positive about real growth returning to the UK and Europe in 2013. The thinking behind this is the improving economies in the USA and Asia having a big impact on Europe since it is still a major part of the world economy.
The euro currency has settled at the 130 range to the dollar and is appreciating slightly as this confidence begins to infiltrate the investment psyche. Sterling has remained steady against all currencies for some time now. Most stock markets are closing out the year at their highest since prior to the financial crisis.
China has achieved a complete change of leadership without anyone really taking much interest because the new premier and prime minister have basically said there will be no change in the management of the economy.
Japan has overcome the terrible cyclone disaster of last year and is starting to exude confidence from the policies put forward by the recently elected new government. All the other economies in Asia are ticking over nicely and looking very sound.
In fact there is very little bad economic news anywhere at the moment.
This is just the moment when some bad news arrives and destroys the air of confidence but there is little sign of anything nasty about to break out. In the USA, even the dreaded fiscal cliff, as everyone describes it, is now looking as though agreement will be reached prior to the deadline.
Looking forward to 2013, one has to accept the likelihood that the world economy is going to start to grow more quickly which will have the effect of dragging Europe along with it. The USA is already picking up speed and starting to increase exports. They are forecasting growth of 3% for next year and big improvement in the housing market which always instils confidence in people.
Europe has probably gone through the worst of this recessionary period and will start to recover returning to a more normal growth trend by the end of next year. The euro currency has also passed through the doom and gloom phase leaving very few people who now believe it will not survive. Providing the politicians continue with their agenda for establishing the entities needed to structure the support for its members in troubled times, the markets should react more positively to the future of Europe.
Now the leadership change is behind us, the Chinese stock market is recovering and investors are looking again at investing in the country. Manufacturers are experiencing more demand for their products from all parts of the world according to the latest statistics.
The new government in Japan has decided to devalue the yen to improve their export market which has been seriously affected while the yen has been overvalued. They are prepared to use every method at their disposal to achieve this and will continue until the desired effect has been achieved. They say they are going to be much more creative in the techniques they will use next year to make this happen.
The emerging market economies have settled down and are beginning to re-establish the growth path they had been achieving prior to the crisis. Many of these countries rely on European manufacturers to supply the high quality equipment to invest in their businesses to continue upgrading the products they make and the extraction of commodities for China and the rest of the world.
I think it is fair to say that I have chosen the good economic facts that support the argument that I am making and some of you could easily present an equally convincing opinion demonstrating an opposite point of view.
I genuinely do not think that is where we are and I believe many people will be pleasantly surprised as the year 2013 progresses.
The Txtreme Business Forum would like to hear your views and arguments on this and any matter over the coming months to stimulate a real discussion forum. All comments are posted where they reflect proper opinion usually on the day they are submitted. Let us hear from you, whatever you have to say.
The Txtreme team would like to wish you all a happy Christmas and New Year and we will be back with comment again in January.