Economics Weekly - How bleak is the future for UK manufacturing? Weekly economic data preview - Focus on BoE/ECB rate decisions and US employment report
Economics Weekly - 2
How bleak is the
future for UK manufacturing?
With the volume of
world trade dropping fast and global growth measured at market exchange rates
set to contract by
about 1%, its worst performance since the 1945, it is no surprise that global
industrial production is falling
sharply. The countries most affected by this fall in world trade growth, and therefore seeing the
biggest falls in industrial production, are not surprisingly those economies
most exposed to
international trade. This includes the UK, where industrial
production in the year to
November was down by 7%
and is likely to have fallen by an annual 8% in December when those
figures are released
later this week. Other countries are even worse off, but we concentrate on the UK in this briefing.
A global downturn is
hitting industrial production in most countries...
IMF figures show that
world trade and industrial production are falling very sharply, see chart a.
This suggests quite a bleak future for UK manufacturing output,
with a weaker exchange rate unlikely to help boost exports at a time when
global export volumes are declining so sharply. And this at a point when the global
financial crisis is likely to set back output growth in the UK services sector more
severely than in many other countries. The reason is that UK firms have been at
the forefront of global trade in the financial instruments most affected by the
current financial crisis, and so, coupled with the deregulation, the UKâ€™s services
sector has grown much faster than its manufacturing sector, especially since
1994, see chart b.This suggests that, if growth in services is significantly
slower as expected, then the strong likelihood is that UK overall economic
growth will also be well below the average of the last decade, when annual average
growth in real (inflation-adjusted) terms was 2.9%. The chart suggests that the
vast majority of the growth in the UK economy for well over
a decade has come from the services sector. And it is unlikely that this could
be replaced by any other industry any time soon.
...but UK manufacturing exports
are up on the year as a weaker exchange rate and slower economic growth than elsewhere
helps the manufacturing sector...
Despite the slower
growth in the world economy, however chart c shows that UK export growth of manufactured
goods has risen compared with year ago levels. Now, this is likely to be
unsustainable with world trade volumes falling sharply, but it does suggest
that the prospects for the sector are not universally bleak. Chart d shows that
the fall in the exchange rate has been very pronounced, and this should
mitigate imports as well as help exports. What are the chances that UK manufacturing output
gives a positive surprise in the years ahead? In terms of UK exports, the share of
manufacturing out of the total has been falling, even though generally the
value of these exports has risen pretty consistently, see chart e.
The reason why
manufacturing goods share of total UK exports has fallen is
because services exports have risen even faster, driven by the boom in global
financial services in the past decade. It is also interesting to note that the
manufacturing sector is more competitive in terms of productivity than many suppose,
see chart f, with growth in productivity faster than in the services sector
(though this is partly due to falling employment levels in manufacturing).
However, our calculations suggest that if the poundâ€™s trade weighted exchange
rate stays weak, and UK economic growth
remains well below that of its key export partners, the UKâ€™s trade deficit could
turn from its current account deficit of Â£26.6bn last year, into a small
surplus by 2011/2012, see chart g. This outcome also assumes that wage
inflation stays low, so the UK sees all of the
benefits of the fall in the exchange rate in an improvement in its relative
unit labour costs compared with other countries. The scenario of a current
account surplus and a sharp rise in manufacturing output and exports is also
dependent on a strong recovery in global trade growth.
...and so the prospects
for UK manufacturing firms
are not universally bleak
These are big ifs, but
suggest that the possibility exists for the fall in the exchange rate to help
rebalance the UK economy in the years
the come, away from its decade long dependence on services and consumer spending
towards manufacturing and investment. The end result will still be weaker UK
economic growth on average in the years ahead than in the last decade - we
estimate that annual trend growth will be 2 to 2.25%, so well below the 2.9%
per year recorded in the last 10 years. However, to write off UK manufacturing because
of the very poor short terms prospects for output is to possibly misread the
likely good performance of some sectors within it in the years to come.
Focus on BoE/ECB rate
decisions and US employment report
The main focus this
week will be on the interest rate decisions by the Bank of England and the ECB on
Thursday and the US employment report on
Friday. The BoE is expected to cut interest rates by 50bps to another all-time
low of 1%, with the manufacturing and services PMI surveys earlier in the week
likely to confirm continuing severe contraction in the economy. In contrast,
the ECB has signalled that the next â€˜importantâ€™ meeting will be in March, hence
it is widely expected to leave rates at 2% this week, but a cut would not be a
complete shock. The ECB press conference following the rate announcement will
therefore be closely scrutinised for clues about the March meeting. The euro
zone PMI surveys and German factory orders/industrial output will confirm the
rapid weakening of economic activity. In the US, the ISM and ADP employment
surveys will provide early hints of Fridayâ€™s official employment report, which
is expected to show another fall of around 550,000 jobs in January and a rise
in the unemployment rate to 7.3% from 7.2%, the highest since 1993. Elsewhere,
the RBA is forecast to reduce interest rates by 100bps to 3.25% and Norges Bank
is expected to cut rates by 50bps to 2.5%.
ô€‚„ The deteriorating economic outlook and prospects of inflation
falling into negative territory in the coming months will prompt the Bank of
England to reduce interest rates again on Thursday. The MPC is expected to cut
rates by 50bps to an all-time low of 1%. Further details of the Bankâ€™s Â£50bn
asset purchase facility, specifically the mechanisms through which initial
asset purchases will be conducted, will be announced this week. The
manufacturing and services PMI surveys will be released earlier in the week and
are expected to show monthly levels consistent with a sharp contraction in
overall economic output. December industrial production and January producer
prices are due on Friday, the latter expected to confirm easing price pressures.
ô€‚„ The euro zone manufacturing and services PMI surveys are
expected to confirm that economic activity continued to contract at a
significant pace in January. The preliminary releases showed a small monthly
rise in the composite PMI survey to 38.5 from 38.2, but this remained well
below the 50 level separating growth and recession. Euro zone retail sales on
Wednesday are forecast to show a third consecutive monthly fall in December, as
consumer confidence declines and unemployment rises. German industrial
production figures are expected to confirm a sharp fall-off in economic
activity in the final quarter of 2008, with output down around 9% in the year
to December. Last week also saw an unexpectedly large fall in euro zone flash CPI
to 1.1% in January, the lowest since July 1999. The data backdrop suggest that ECB
President Trichet is likely to signal lower interest rates for the March
meeting. However, the ECB has indicated that it is likely to leave rates on
hold this week, having reduced them by 50bps to 2% only on January 15th, but a
cut would not be a complete shock.
ô€‚„ All eyes will be on Fridayâ€™s US employment report,
which is expected to show a continuation of the accelerated pace of job cuts
since last September. Another 550,000 jobs may have been lost in January and
the unemployment rate is forecast to climb to 7.3%, the highest since January
2003, and is likely to surpass the early 1990s peak of 7.8% in the coming
months. Earlier in the week, the ISM surveys and ADP employment report will
provide hints on the outcome of Fridayâ€™s non-farm payrolls. The manufacturing
ISM is expected to remain weak at around 33, while the non-manufacturing ISM is
forecast to fall to 39 from 40.1. Early indications suggest that the economy
may contract by an even faster pace in the current quarter than the 3.8%
annualised fall in Q4. Elsewhere, on the heels of last weekâ€™s unexpectedly
large 150bps rate cut to 3.5% by the RBNZ, the RBA on Tuesday is predicted to
reduce rates by a further 100bps to 3.25%, as economic prospects deteriorate
and inflation falls. Norway and South Africa are also expected to
reduce rates by 50bps and 100bps, respectively, to 2.5% and 10.5%.
Any documentation, reports, correspondence or other
material or information in whatever form be it electronic, textual or
otherwise is based on sources believed to be reliable, however neither the Bank
nor its directors, officers or employees warrant accuracy, completeness or
otherwise, or accept responsibility for any error, omission or other
inaccuracy, or for any consequences arising from any reliance upon such information.
The facts and data contained are not, and should under no circumstances be
treated as an offer or solicitation to offer, to buy or sell any product, nor
are they intended to be a substitute for commercial judgement or professional
or legal advice, and you should not act in reliance upon any of the facts and
data contained, without first obtaining professional advice relevant to your
circumstances. Expressions of opinion may be subject to change without notice.
Although warrants and/or derivative instruments can be utilised for the
management of investment risk, some of these products are unsuitable for many
investors. The facts and data contained are therefore not intended for the use
of private customers (as defined by the FSA Handbook) of Lloyds TSB Bank plc.
Lloyds TSB Bank plc is authorised and regulated by the Financial Services
Authority and is a signatory to the Banking Codes, and represents only the
Scottish Widows and Lloyds TSB Marketing Group for life assurance, pension and
Forex Trading News
Daily Forex Market News Forex news reports can be found on the forex research
headlines page below. Here you will find real-time forex market news reports
provided by respected contributors of currency trading information. Daily forex
market news, weekly forex research and monthly forex news features can be found
Forex News Real-time forex market news reports and features providing
other currency trading information can be accessed by clicking on any of the
headlines below. At the top of the forex blog page you will find the latest
forex trading information. Scroll down the page if you are looking for less
recent currency trading information. Scroll to the bottom of fx blog headlines
and click on the link for past reports on forex. Currency world news reports
from previous years can be found on the left sidebar under "FX Archives."
Elevate Your Trading With The Amazing Trader!
The Amazing Trader includes:
Actionable trading levels delivered to YOUR charts in real-time.
Mon 19 Feb 2018
00:00 CN, US- Holiday Tue 20 Feb 2018
00:00 CN- Holiday A 10:00 US- ZEW Survey Wed 21 Feb 2018
00:00 CN- Holiday A All Day flash PMIs A 15:00 US- Existing Homes Sales A 15:30 US- EIA Crude AA 19:00 US- Fed Meeting Minutes Thu 22 Feb 2018 A 09:00 DE- IFO Survey A 09:30 GB- GDP AA 13:30 CA- Retail Sales A 13:30 US- Weekly Jobless Fri 23 Feb 2018 A 10:00 EZ- Final HICP AA 13:30 CA- CPI
John M. Bland, MBA co-founding Partner, Global-View.com
Veteran FX Trader, Max McKegg, forecasts all the Major currencies and the Australasians; providing Daily and Medium Term Trading forecasts to subscribers, who include large Banks the world over, as well as individual traders in more than 30 different countries.
looking for your first broker or do you need of a new one? There are
more critical things to consider than you might have thought.
We were trading long before there were online brokers. Global-View
has been directly involved with the industry since its infancy. We've
seen everything and are up-to-data with recent regulatory changes.
The Global-View Forex Forum is the hub for currency trading on the web. Founded in 1996, it was the original forex forum and is still the place where forex traders around the globe come 24/7 looking for currency trading ideas, breaking forex news, fx trading rumors, fx flows and more. This is where you can find a full suite of forex trading tools, including a complete fx database, forex chart points, live currency rates, and live fx charts. In addition, there is a forex brokers directory where you can compare forex brokers. There is also a forex brokers hotline where you can ask for help choosing a forex broker that meets your individual fx trading needs. Interact on the same venue to discuss forex trading.
The forex forum is where traders come to discuss the forex market. It is one of the few places where forex traders of all levels of experience, from novice to professionals, interact on the same venue to discuss forex trading. There is also the GVI Forex, which is a private subscription service where professional and experienced currency traders meet in a private forex forum. it is like a virtual forex trading room. This is open to forex traders of all levels of experience to view but only experienced currency tradingprofessionals can post.
Currency trading charts are updated daily using the forex trading ranges posted in the Global-View forex database. You will also find technical indicators on the fx trading charts, e.g. moving averages for currencies such as the EURUSD. This is another forex trading tool provided by Global-View.com.
The forex database can be used to access high, low, close daily forex ranges for key currency pairs, such as the EURUSD, USDJPY, USDCHF, GBPUSD, USDCAD, AUD, NZD and major crosses, including EURJPY, EURGBP, EURCHF, GBPJPY, GBPCHF and CHFJPY. Data for these currency trading pairs dating back to January 1, 1999 can be downloaded to an Excel spreadsheet.
Forex chart points are in a currency trading table that includes; latest fx tradinghigh-low-close range, Bollinger Bands, Fibonacci retracement levels, daily forex pivot points support and resistance levels, average daily forex range, MACD for the different currency trading pairs. You can look on the forex forum for updates when one of the fx trading tools is updated.
Global-View also offers a full fx trading chart gallery that includes fx pairs, such as the EURUSD, commodities, stocks and bonds. In a fx trading world where markets are integrated, the chart gallery is a valuable trading tool. Look for updates on the Forex Forum when the chart gallery is updated.
Global-View.com also offers a forex blog, where articles of interest for currency trading are posted throughout the day. The forex blog articles come from outside sources, including forex brokers research as well as from the professionals at Global-View.com. This forex blog includes the Daily Forex View, Market Chatter and technical forex blog updates. In additional to its real time forex forum, there are also Member Forums available for more in depth forex trading discussions.
WARNING: FOREIGN EXCHANGE TRADING AND INVESTMENT IN DERIVATIVES
CAN BE VERY SPECULATIVE AND MAY RESULT IN LOSSES AS WELL AS PROFITS. FOREIGN
EXCHANGE AND DERIVATIVES TRADING IS NOT SUITABLE FOR MANY MEMBERS OF THE
PUBLIC AND ONLY RISK CAPITAL SHOULD BE APPLIED. THE WEBSITE DOES NOT TAKE
INTO ACCOUNT SPECIAL INVESTMENT GOALS, THE FINANCIAL SITUATION OR SPECIFIC
REQUIREMENTS OF INDIVIDUAL USERS. YOU SHOULD CAREFULLY CONSIDER YOUR FINANCIAL
SITUATION AND CONSULT YOUR FINANCIAL ADVISORS AS TO THE SUITABILITY TO YOUR
SITUATION PRIOR TO MAKING ANY INVESTMENT OR ENTERING INTO ANY TRANSACTIONS.