There are many bystanders across Europe awaiting with baited breath the results of the UK’s referendum on leaving the EU. In most cases it’s extremely difficult to assess what the potential impact is going to be on the UK economy never mind others in Europe. However there’s some consensus from some economists that it is the Irish economy could be most affected by a decision to leave.
Trinity College Dublin
The latest research is from the Oxford Economics group who have studied the potential impact on Ireland’s economy in some detail. Their conclusions are that a ‘Brexit’ is almost certainly bad news for Ireland with the worst case scenario suggesting a 2.2 fall in Irish GDP.
The Irish economy is of course, in a period of recovery after a meltdown in the recession. This year however the economy is forecast to expand by nearly 5% with a similar expectation for 2017. This growth rate would be seriously affected if the UK left the EU and an even bigger impact would be on small businesses in Ireland.
It is difficult to overestimate the links between the UK and Irish economies. Although they are separate economies which is often highlighted to me when I can’t catch the news on BBC iPlayer Ireland when visiting Dublin – the UK is by far their biggest trading partner in Europe and the referendum is bound to have a huge impact.
Over 40% of Irish exports are sent to the UK and the percentage is probably much higher among smaller Irish businesses who often are completely reliant on UK trade. The actual impact though would depend largely on post-exit negotiations with both the EU and the Irish government.
There are certainly some much more favorable options which involve various settlements and agreements being made on immigration and trade. These could possibly mean that the impact is fairly inconsequential although these are likely to take time to negotiate and it is expected that even the uncertainly would have some impact on the economies of both the UK and Ireland.
There are many ways of measuring the success of an economy, however for ordinary people – levels of employment are certainly one of the most important. When people are employed, the benefits accrue to the economy as a whole. People with jobs earn money to pay taxes, buy goods and services and invest in the economy. In addition, people with jobs don’t need supporting with benefits and support for food, housing and healthcare.
So the March report from the US Labor Department was very good news, with the report that 242,000 new jobs were created last month in the USA. This was quite significantly higher than had been predicted by many economists who expected unemployment to begin rising mainly due to the global economic stagnation that has been taking place. IN fact there were rises in all sorts of sectors from food services, construction and education. In fact there were only a few sectors that did struggle including the mining industry which has been suffering directly over the last few months.
The reported Unemployment rate has held steady at 4.9% which still represents an eight year low. Of course, although this figure sounds quite manageable as a percentage it does however mean that nearly 8 million Americans are without a job. There are also an estimated 6 million people in part time employment who are actually wanting to work full time. These figures are based on a fairly static ‘participation’ rate which is the number of people who are working or looking for work in the US economy.
Although these results sound fairly promising, there are other reports which have more cause for concern. For one the state of the trade deficit which has got steadily worse over the last twelve months. The current deficit (the amount the US imports compared with it’s exports) is now at the highest level in nearly five years. The main issue is the fall in US exports which is largely the result of the extremely strong dollar. There are some interesting reports on NBC and ABC regarding these economic issues on their web sites but you’ll need an American IP address to access them.
This is a significant worry though, falling exports will inevitably eventually filter down into the jobs market. The reason is that exports represent the production of US made products using US labor in American businesses. Although domestic demand is good, without exporting goods then overall demand for US goods and services will definitely start to fall and cause unemployment to start rising again. The business community are well aware of these risks and there is an increased pessimism which could cause further damage to the US economic recovery.
It’s just over 3 months since the Poland Law and Justice party (PiS) won control over the country and ever since then they have been embroiled in a series of controversies.
First there have been a series of controversies over the press and media freedoms since the Conservative party came to power with a promise of supporting Catholic ideals and supporting families with economic aid. Many of the country’s leading media have seen new leader’s who are sympathetic to the new party. In addition the new government has packed judges into the highest courts to boost it’s power base and prevent controversial legislation being blocked.
The latest laws implemented have seen increased the governments control over the prosecutor’s office and expanded surveillance laws to the police and security services. Many are worried not only about the authoritarian approach by the new Government but also how it will bring it into conflict with European democratic rules and standards.
The weakness of the economy is the government’s most important focus and one of the areas they are focusing on is the disparity between foreign and domestic capital, Foreign companies transfer over 20 billion euros every year from the Polish economy. More than 50% of the Poland’s GDP comes from foreign capital supported companies, and there are estimated to be only 6 Polish companies who can effectively operate on the world stage.
This is where the Government hope that they can redress the balance and rebuild Polish companies by increasing state control to support domestic companies. The hope is that Poland can become less dependent on foreign capital in strategic sectors like banks, energy and the media. Although it should be noted that the high growth experienced by the Polish economy over the last few years has largely been the result of foreign investment.
The worry is that an open European market does not work alongside nationalistic interventionist economic policies. Freedom of the press is important and you can already seen that criticism and problems are being suppressed in the media, although you’ll need a Polish proxy to see them on internet sites based outside Poland.
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Canada has had a rough few years, which might surprise a lot of people who don’t watch international movements of economies. It initially weathered the global 2008 crash better than most economies mainly because it wasn’t as heavily reliant on the banking sector and they weren’t required to bailout institutions to the extent of the US and European governments.
However they have been impacted by the global slump in economic prosperity partly because this has caused such a fall in oil prices. There are many countries across the world who’s economic success is currently linked directly to the oil price and Canada is definitely in that category.
However economists are particularly worried about the growth of private debt that has been occurring despite this economic slowdown. Some experts think that Canadians have continued to spend and borrow too much over the last few years. House prices and the levels of debt have grown consistently and Mark Warner the previous governor of the Bank of Canada consistently warned of this while he was in office.
The figures are worrying, in March a report stated that Canadians hold about $1.32 for every $1 of disposable income in 2014, this represents a record high for Canada. Some economists are not worried about these numbers arguing that net asset values and worth are also rising steadily to support these debts.
The standpoints vary depending on whether you think that you compare the level of debt to the level of income or net worth.
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It seems like years since we had some genuinely positive news about the eurozone’s economic outlook. So for many the news that the economy of the eurozone has grown by 0.4% in the first three months of the year was well over due. The official figures show that the recovery is beginning to speed up slightly, although many forecasters had been predicting a slightly larger rise than this.
The trend is encouraging though with this fastest quarter growth results for a couple of years. The growth is still slow but it’s looking sustainable and showing the possibility that it may increase.
There were other figures released before then which are of interest to eurozone economists. Germany’s economic growth was actually below the average at 0.3%, which represents a significant slow down from the previous 0.7% growth figure for the last quarter of 2014. The positive signs in the German economy in the areas of private consumption and investment in construction which both rose, were countered by a surprising fall in German exports.
Inflation in Germany is under control and is under the current ECB target of 2% or under. Most European countries have fairly well controlled inflation in fact the concerns are usually around the level being too low. An interesting economic documentary covered the risks of deflation, you can still catch the programme on the BBC iPlayer application although you’ll need to connect through a UK proxy to view it.
One of the bigger surprises was the long awaited improvement of the French recovery. The economy also hit a two year high for growth with it rising an impressive 0.6%. There are reports that confidence is returning to the economy with French consumer spending growing by 1.6%, although some of this will be due to the lower oil prices and the relatively weak euro rate. Industrial production levels are also on the rise, with a four year high being recorded.
Other countries are also fairing better with Italy also recording growth figures, for the first time in several years. Spain topped the Euro growth charts with a recorded 0.9% improvement in it’s economy, the fastest rate for eight years.
How much of this is a result of external factors like the fall in oil prices and the weak currency is difficult to tell. There is no doubt that there are several factors which are helping plus the increased level of fiscal stimulus from the European Central Bank. There is little doubt that the majority of this growth is being fuelled by domestic demand which would be similar to the initial recover in the UK economy too.
Is democracy working in Europe, more specifically is it working in Greece for example. The country has voted for and anti-austerity party – the Syriza party, who have a mandate to pursue a specific set of economic policies based on reducing austerity measures and promoting growth instead as a means to reducing the country’s huge debts.
However as subsequent events have seen, Syriza has very little opportunity to pursue this particular strategy unless the creditors of Greece give their blessing. The German finance minister was quick to point out in a recent Channel 4 Online documentary covering the results that the new elections changed nothing meaning that it didn’t matter who Greece voted in the elections, the debt has to be repaid and austerity was the main instrument in achieving this. It seems that democratic choice currently means very little in Greece, a cost of the huge debts it has run up. Or does it mean that being a member of the Eurozone means that domestic democracy is ceded to Europe’s leaders and financiers.
This is not something that is specific to Greece of course, there are elections in several other European countries this year perhaps most notably Spain. Here also the radical left are leading the polls headed by the Podemos party, who also are opposed to the strict financial restrictions imposed by Wolfgang Schaulde the German finance minister. The same has happened in other countries who seek to change their economic direction, the new Italian government were also prevented from investing more stimulus in the short term.
Similar situations are occurring all over Europe, with even France desperate to borrow more and inject some stimulus into their economy. Most of these economies could borrow and invest more if Brussels allowed them to. It’s difficult to see how this will play out, it is fairly inconceivable that the same methods will solve all the individual economic woes of the Eurozone countries. What is good for the German economy and the Eurozone in general certainly won’t solve the debt issues of Greece and Spain, but how can they change direction. Even string economic mandates have failed to soften the German governments stance, yet Greece for example will face decades of misery if they continue along this road.
The big issue for outsiders is that the Eurozone seems to strip domestic voters and their elected leaders of the ability to make many economic and political decisions. The Eurozone is supposed to be a collective of democracies, however it’s difficult to see that when the ‘throne’ seems to reside in Brussels and power wielded from Berlin.
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.