The UK economy took a little breather in the last quarter of 2014, with economic growth slowing down across many sectors. However there were exceptions which demonstrate that certain areas of the UK economy are driving forward the recovery with others relatively stagnant.
One of the most important surveys in the last few weeks is that of the KPMG/Markit UK report which tracks various economic indicators. It is particularly interesting to monitor the performance of the UK technical sector and compare it with other areas. The UK Technical sector has been of increasing importance to the UK economy for many years and it seems that it growing by the year, the last quarter of 2014 demonstrated the highest performance gap for the last 8 years.
The tech sector continues to outstrip virtually every other sector of the economy, with new business gains, new products and even allowing for slow cost inflation (which can often effect demand for technical products). Many new product launches helped perhaps inflate this difference but it has also resulted in a higher investment spending across the sector.
This is of course important to jobs as well and there is evidence of substantial employment increases to help fuel this growth. Employment in the IT sector is also traditionally fairly well paid and can contribute to other sectors and overall growth of GDP. The outlook remain positive, although perhaps with some slight reservations along with the rest of the economy.
There is no doubt that the IT sector is becoming in increasingly important to the UK economy. There is also evidence that the pattern of employment in the UK is diversifying from the traditional roles. There is much evidence to demonstrate that more and more people are becoming self employed or working across several roles rather than the standard 9-5 one company employment model. It is important to develop these sectors as they typically create highly skilled, adaptable and well paid employees.
One area which has shown a huge increase is that of people who leverage the internet to provide their main source of income. Many thousands of people now do business purely online, with virtual businesses contributing a small but growing contribution to the internet. Digital products and services like this from Ireland are bought and sold all across the world, providing income for thousands.
A couple of years ago, myself and several potential investors attended a presentation by a whole host of people and managers urging us to invest in Russia. At the time it seemed like a very sensible thing to do, however a few short months later it’s looking like exactly the opposite.
The Russian economy doesn’t seem to have much to look forward to anymore with political and economic events combining to push it deeper into recession. This week those prospects were underlined as Moody’s cut Russia’s debt rating yet again, bringing it down to ‘junk status’.
Unfortunately these ratings often become a self fulfilling prophecy as the fall in ratings will inevitably affect capital investment and the cost of borrowing. Standard and Poor have already taken this step and reduced the rating last month. Both agencies predicted a deep recession which will carry on to 2016, consumer confidence is key with domestic demand also falling in light of such reports.
So what has caused Russia’s fall from economic prosperity so quickly? There are obviously many factors but most could be managed except for one – the fall in oil prices. The market is now awash with oil due to the global recession and other factors like the US fracking boom – Russia’s economy is linked directly to the oil price which of course has plummeted. All of Russia’s other problems could easily be handled if there was a high oil price, there isn’t so it’s running a severe deficit until it recovers.
Much of the rest of Russia’s woes are largely self inflicted, the sanctions which have been imposed are due to it’s intervention in Ukraine’s territorial problems. Unfortunately control and access to the media is tightly controlled, so there is significant spin on these events. Although some Russians have access to other sources of news by using VPNs to access things like the BBC abroad – http://www.iplayerabroad.com/. Most people are restricted to the Russian controlled media. This means that Russian’s are further likely to adapt a siege mentality when it comes to domestic spending.
The likelihood is that Russia will suffer further sanctions unless it pulls back in Ukraine, which at the moment seems likely. Despite Putin’s rhetoric, the economy is likely to continue to decline over the next few years, especially with a major hike in the price of oil looking likely for a significant period.