Growth is put to the sword
HOT on the heels of Janet Yellen’s rejection of an early rise in American interest rates, Bank of England chief economist Andy Haldane has planted his own flag.
A speech delivered in Northern Ireland focuses on the increasingly murky outlook for the global economy, arguing that the case for a rise in interest rates ‘is some way from being made’. His comments appear to put him at odds with the governor Mark Carney who has made the case for a gradual rise in British interest rates starting around the turn of the year.
There is great concern that behind the conniptions on the Chinese markets in August, something far more serious is taking place.
Expansion in the world’s second largest economy is slowing but, as importantly, Western policymakers have been alarmed by the lack of skills shown by the authorities in Beijing in handling the disruption.
Understanding of the free market economy and how it works is wafer thin, which is a little bit hairy given the importance of China. It may not be the ideal time for George Osborne to be embarking on a sales mission to China, although there are deals such as the financing for nuclear power at Hinckley Point in Somerset to be tied down.
Reasons for being fearful over China are not just about the danger to exporters and British retailers, such as Burberry, but concerns about what some economists refer to as a ‘negative feedback loop’.
China’s economy stumbles, demand for vital commodities from iron ore to copper and wheat to oil falls off a cliff, sending prices tumbling. That hits the commodity- dominated economies Australia, Zambia, Canada and even Scotland, the epicentre of North Sea oil services.
The benefits in terms of lower prices are outweighed by the loss of production. It would be wrong to see China as the only risk to the global upturn. Greece, for the moment, has fallen off the global agenda after the knife-edge build- up in June and July when Syntagma Square was in flames.
Agreement on an €86bn rescue package brought calm and the banks have been able to reopen.
But work on economic reforms cannot really begin until after this Sunday’s elections. The Left-wing Syriza government is badly wounded as a result of splits in its ranks. Moderate New Democracy is having a renaissance alongside the appalling neo- Nazi party Golden Dawn. If a different, more pro-reform government were to emerge, it might require some kind of renegotiation with creditors.
Encouragingly, eurozone governments do seem to be preparing to cap Greece’s financing costs, should reforms be taken seriously, in effect stretching out repayments over decades.
The International Monetary Fund is desperate to see its $18bn rescue for Ukraine up and running because of the broader signals it will send to Russia. Amazingly, the Kiev government has signalled its readiness to tackle the thorny issue of gas and electricity subsidies, with the government picking up 89pc of the bills at present. Fund officials regard the current plan for Ukraine, which includes exchange rate reform, as a really ‘big deal’.
Migration flows into Europe are another layer of uncertainty. Fundamental is the lack of governance in Libya and Syria, and an Arab Spring that has gone horribly wrong.
The scale of the shifts in population may require Germany to reform its labour market if social unrest is to be avoided. It is another risk to growth layered on all the others.
The case for an end to ZIRP – zero interest rate policy – is that it will bring the curtain down on endless speculation. But the message from the Fed, the IMF and now Haldane is that it is the wrong moment to draw a line under the financial crisis and raise rates.
Big payday
FORMER chief executive Stephen Hester and 80pc state- owned Royal Bank of Scotland must be hoping that no one in the Commons or Whitehall is looking too closely at the flotation of UK payments concern Worldpay.
Having rejected a £6.6bn French bid, the firm’s private backers Advent and Bain Capital have decided more cash can be released via an initial public offering, expected to raise at least £6bn.
That is all fine and dandy, but taxpayers may wonder how a company worth just £1.7bn when it was sold is now worth triple that amount, even if £1bn of new investment has been made.
Quick profits have been made at our expense.
HP sauce
US PRESIDENTIAL hopeful Carly Fiorina may have found herself under fire for her record at Hewlett-Packard, but it cannot be any worse than one of her successors, Meg Whitman.
Under Whitman’s leadership the shares have tumbled 34pc vis-à-vis the Dow Jones, net profit has plunged 51pc and HP has written off an astonishing £33bn in exceptional items. That could partly explain why it chose to make Mike Lynch of Autonomy a scapegoat for its troubles.