“A banker is a fellow who lends you his umbrella when the sun is shining and wants it back the minute it begins to rain” (Mark Twain)
I recently returned from a business trip to South Africa. I was flown over to present my investment ideas and during my time being the key note speaker and from the conversations with investors, I noted a recurring question – “what data should I watch?”. Now, I always maintain that one must not focus too heavily on one data point or information from one source / point of view. Nevertheless, to help give some clarity, I’ve managed to boil down global economic insights into just a handful of key points. Starting with the UK - short term growth restrained, drivers of growth later on uncertain...
In terms of the three stages required for a self-sustaining recovery:
- Stimulus – yes, we’ve seen quantitative easing but are we seeing LENDING (to businesses, consumers etc – remember consumption still accounts for a large % of GDP)?
- Inventory Rebuilding – yes we’ve seen temporary re-stocking but are we seeing consumers SPENDING?
- Job Creation – are jobs no longer at risk i.e. a SELF-SUSTAINING recovery?
Conclusion: The UK “ain't there yet!”
1. Versus stimulus we are to see the largest fiscal squeeze since WWII
click to enlarge images
Planned Fiscal Tightening (2010-13). From adding 0.8% to GDP to subtracting 0.2%.
And lending remains muted:
“Despite various forms of support from the Bank of England and from Government, it is clear that the lending capacity of the banking system, in the UK and elsewhere, is impaired and will take some years yet to recover. Some banks need to continue de-risking and de-leveraging." Paul Fisher - Executive Director Markets and member of the Monetary Policy Committee
Source: Bloomberg. UK Money Supply Growth (yoy) at 3 decade low
2. Instead of spending, governments, households and companies are de-leveraging, confidence is low, household spending restrained.
From Rebecca Wilder's article (Household leverage: what does the US have that the UK does not?) in News N Economics (her answer: they still have expansionary fiscal policy), the chart featured below highlights the extent to which households still need to de-lever (and a comparison of the heightened problem in the UK vs. the US).
UK Household leverage (blue) - further to fall, especially when compared to the US (red)
3. Job creation? Following on from the government’s public spending review - 750k public sector jobs are at risk.
INVESTMENT INSIGHT: Conditions for a sustainable, strong recovery are “still not there yet."
Disclosure: No position - What is written is done so in a personal capacity and is not necessarily reflective of the views of any organisation with which the author might be associated