Monetary hope at the end of the tunnel? City Comment
25 April 2013
The blistering start to the year by the global stock markets remains broadly intact despite widely regarded mediocre economic results and the uncertain outcome portrayed.
Thu, 25 Apr 2013 | Sue Dodd, director, Agile Intelligence
The blistering start to the year by the global stock markets remains broadly intact despite widely regarded mediocre economic results and the uncertain outcome portrayed.
Even a combination of weaker Chinese growth, faltering US recovery, fiscal impasse and a Eurozone scarred by its recent past and displaying persistently weak prospects, has failed to overly dampen the markets.
Some would say that the markets do not lie and this portends ‘real economy’ gains later in the year through the combination of monetary stimuli and rising global demand. Others take the view that the markets are attempting to defy gravity with an eventual and inevitable unwinding of Quantitative Easing together with sovereign debt re-balancing, which could profoundly affect demand in some of the largest economies.
Whatever the future, the latest indicators, globally, suggest a weakening of industrial growth in China and the US together with steepening contraction in the Eurozone. The International Monetary Fund has called for more economic stimulus as it cut its global growth forecast to 3.3% and predicted a 0.3% decline in the Eurozone this year.
With manufacturing surveys pointing south for much of Europe, including Germany, and individual countries reaching their political limits as austerity has generated further economic decline (Spain now expects -0.5% in Q1), there are growing demands for a cut in European Central Bank interest rates next week to follow on from the recent rescheduling of debt. The new Italian prime minister has just echoed the call to ease austerity – a round of renegotiations in Europe now seems likely.
Back in the UK, while global issues are entirely relevant to economic success, GDP figures just released for Q1 show a welcome 0.3% gain driven by a stronger services sector but offset by a sharp reversal in construction. As last year’s exceptionals such as the Olympics work through, the quarter-on-quarter comparisons become less distorted. With GDP ‘bumpy’, the labour market apparently stagnating, job vacancies on a plateau and overseas demand easing, the prospects for recruitment companies have been seen as uncertain or challenging. Recent company statements cite poor visibility but selective investment continues, mainly overseas.
Perhaps the announcement that invoice financing will now be covered by the government’s Funding for Lending Scheme, which itself will be extended through 2014, could provide some assistance to recruiters finding it hard to access borrowings either to fund existing working capital or business growth. If the system works and the funds are forthcoming then it could potentially mean the difference between expansion and stagnation (or worse) for some companies. Working capital to fuel recovery will eventually be needed – the question is will the recovery be in sight before this scheme ends and will the intended benefits truly flow through to the sharp end?
The blistering start to the year by the global stock markets remains broadly intact despite widely regarded mediocre economic results and the uncertain outcome portrayed.
Even a combination of weaker Chinese growth, faltering US recovery, fiscal impasse and a Eurozone scarred by its recent past and displaying persistently weak prospects, has failed to overly dampen the markets.
Some would say that the markets do not lie and this portends ‘real economy’ gains later in the year through the combination of monetary stimuli and rising global demand. Others take the view that the markets are attempting to defy gravity with an eventual and inevitable unwinding of Quantitative Easing together with sovereign debt re-balancing, which could profoundly affect demand in some of the largest economies.
Whatever the future, the latest indicators, globally, suggest a weakening of industrial growth in China and the US together with steepening contraction in the Eurozone. The International Monetary Fund has called for more economic stimulus as it cut its global growth forecast to 3.3% and predicted a 0.3% decline in the Eurozone this year.
With manufacturing surveys pointing south for much of Europe, including Germany, and individual countries reaching their political limits as austerity has generated further economic decline (Spain now expects -0.5% in Q1), there are growing demands for a cut in European Central Bank interest rates next week to follow on from the recent rescheduling of debt. The new Italian prime minister has just echoed the call to ease austerity – a round of renegotiations in Europe now seems likely.
Back in the UK, while global issues are entirely relevant to economic success, GDP figures just released for Q1 show a welcome 0.3% gain driven by a stronger services sector but offset by a sharp reversal in construction. As last year’s exceptionals such as the Olympics work through, the quarter-on-quarter comparisons become less distorted. With GDP ‘bumpy’, the labour market apparently stagnating, job vacancies on a plateau and overseas demand easing, the prospects for recruitment companies have been seen as uncertain or challenging. Recent company statements cite poor visibility but selective investment continues, mainly overseas.
Perhaps the announcement that invoice financing will now be covered by the government’s Funding for Lending Scheme, which itself will be extended through 2014, could provide some assistance to recruiters finding it hard to access borrowings either to fund existing working capital or business growth. If the system works and the funds are forthcoming then it could potentially mean the difference between expansion and stagnation (or worse) for some companies. Working capital to fuel recovery will eventually be needed – the question is will the recovery be in sight before this scheme ends and will the intended benefits truly flow through to the sharp end?
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