The accountancy firm BDO run an annual economic update seminar and with their confidence index showing an upswing, it’s interesting to put this into perspective. Douglas McWilliams, chairman of CEBR gave his thoughts for the upcoming year, some of which are highlighted here. They say if you have three economists in a room you get four opinions, one for each and one for all. Caveat emptor…
Oil prices are back to where they were in the mid 1980’s and none of the US shale projects break-even below $40 or so – a third are loss making below $80. The oil price fall has probably overshot, but supply still far exceeds demand, despite the fact that over around half of current oil reserves cannot be extracted without global climate change targets being binned. Coal is still the number one energy source and unless the Saudis are forced to drop output, the oversupply will continue until the global economy grows faster, aided by the lower oil prices.
China is projected to overtake the US in global economic terms by 2015. The UK appears to have overtaken France this year (just!) to become the world’s 5th largest economy. However, by 2018 the UK will have been overtaken by India, which is set then to become the largest economy in the Commonwealth. US growth will continue steadily, whilst the Eurozone is still going nowhere and a euro crisis could be triggered this year by a variety of factors unless cheap oil manages to bail it out. The US$ will strengthen against the euro as the Fed prepares to tighten whilst Europe loosens. China’s industrial production is slowing, but a soft landing is expected as it still remains stronger than in many other economies. World growth is expected to recover from Q2 2015.
UK economic growth will peak this year and then fall back. Unemployment is falling rapidly which may pave the way for a rate rise at the end of the year with gilts only currently held down by QE.The UK has risks ahead with fiscal austerity in the next parliament and difficulty in generating a trade-led recovery. Sterling will weaken further against the USD. The euro will be the weakest currency in the world for the next few years. UK inflation could temporarily go negative.
In the Technology, Media, Telecoms world, London is growing at an annual rate of 4% beating New York. The official data on Information and Communications Technology (ICT) understates its contribution to the economy, which directly and indirectly drives 30% of GDP (rising to 50% by 2025).
So, the UK should have a reasonable year, although growth is likely to slow after the election for a range of reasons.
Make hay whilst the sun shines…