More worrying signs
Well, 2012 is starting where 2011 left off, with more signs we’re heading back to recession. Some reports of today’s Purchasing Managers’ Index results emphasise the fact that it’s up to 49.6 from 47.7 in November. But any result below 50 is a deterioration, albeit at a slower rate and Markit, the organisation which produces the Index, notes that over the fourth quarter as a whole, this country suffered the worst fall in output since the second quarter of 2009. We should be particularly worried that this is also true for new orders.
Other depressing news items today included the Financial Times’ survey of 83 economists’ expectations for the coming year (£) in which three times as many thought the economic outlook would deteriorate as that it would improve and Lloyds Bank’s monthly business barometer, which fell to its lowest level in three years in December.
I was particularly struck by Deloitte’s survey of finance directors. Their view of their companies’ financial prospects headed south throughout last year and is now as bad as it was at the end of 2008:
After looking at this chart, it should be no surprise that
on average they see a 54% chance of the UK suffering a ‘double dip’. Most expect the period of weakness to be prolonged, lasting for more than a year.
What we should worry about is the fact that Chief Finance Officers are drawing the obvious conclusion that this is not a good time to invest. This is depressing, because most optimistic scenarios are based on the fact that companies have plenty of cash and the hope for an investment-led boom. Well, that doesn’t look likely:
In all of these reports and surveys it’s increasingly clear that worries about the Eurozone are freezing investment decisions and depressing confidence. Deloitte quote one CFO as saying
Everyone is waiting for something very bad to happen.
I’ve been careful to make the distinction between blaming the Euro for the collapse of UK output over the past 18 months – definitely wrong – and claiming that Euro problems aren’t going to have an impact; plainly they are.
Some commentators and politicians are going to claim that the damping effect on investment and order books that we’re beginning to see now proves that none of our current mess should be blamed on the government. They’ll be wrong, but they may get away with it if the rest of us aren’t clear about the distinction between what has happened since the second half of 2010 and what seems likely to happen now.