Bleaker international prospect
The Chancellor’s plans to “move away from an economy built on debt to an economy where we invest and export” and the OBR‘s expectation that net trade will make a “significant contribution to growth” look increasingly optimistic.
Today the August Purchasing Managers’ Index(*) results from Markit make disappointing reading. In the Eurozone, which accounts for more than two fifths of our trade, overall growth was at its slowest for two years and manufacturing production fell for the first time since July 2009; new business (an important marker for future prospects) fell for the first time in two years. There’s some good news for Britain in the fact that Ireland, which is a significant market for this country, saw faster output growth. But Ireland is a small economy and this news is overshadowed by the fact that Germany – powerhouse of the European economy – saw the “slowest rise in German service sector business activity since October” and the first reduction in new business for over a year. Last week, the German manufacturing PMI fell for the fourth month running, reaching its lowest level since September 2009. And, of course, last week’s US jobs figures don’t suggest we’re going to get through by exporting to the other big advanced economy.
And we can add to this some depressing PMI figures for the UK – last week, the manufacturing PMI was at its lowest for 26 months and the volume of new orders fell for the fourth month running. Today, the UK services PMI (and remember, services account for two-thirds of the economy) fell to its lowest level this year (though still showing growth); the index for new business is a little better, standing at the lowest level for six months.
Across the world, governments are strangling domestic demand – and hoping to win recovery on the back of their neighbours’ expansion. This isn’t working, and this realisation is feeding through to business.
(*) Purchasing Managers’ Index figures are based on surveys of how purchasing managers see the last month and the likely future. When markets grow or shrink companies respond by adjusting their purchasing intentions, so these Indexes are a good window onto the likely future.