Ain’t No Stopping Us Now!

Ain’t No Stoppin’ Us Now!                                                                      03 December 2020

By the end of October, the Dubai Land Department (DLD) had recorded a total of 3.4k monthly sales transactions, worth US$ 1.9 billion, and a ten-month total of 27.8k, valued at US$ 15.6 billion – a positive indicator that the property market may have reached its nadir. 62.8% of October transactions were in the secondary market (and the balance for off plan sales). According to Property Finder’s data, in October, there was a 7.2% hike in the transfer of secondary or ready to move in villas/townhouses at 665. In that month, 1.0k villas/townhouses were transferred in both the off plan and secondary market, and a total of 2.0k apartments were transferred with 1.1k in the secondary market and 0.9k in the off-plan market. Since June, each month has witnessed a new all-time high which has come a long way from May’s return of just 110 transactions. The most popular areas for secondary or ready-to-move-in villas/townhouses in October were Nad Al Sheba (11.8%), Town Square (7.8%), International City (6.7%), Arabian Ranches (6.4%) and Dubai Hills Estate (5.9%). 39.0% of the transactions were for 4 B/R units, 34.7% for 3 B/R units and 14.8% for 5 B/R units.

For the thirteenth straight year, Mina Rashid has been awarded the World’s Leading Cruise Port at the World Travel Awards (WTA) 2020. Since it first won the accolade in 2008, the DP World facility has undergone extensive development and significant upgrades and its growing stature mirrors Dubai’s status as a facilitator from traditional dhow-enabled trade to a global community hub for the maritime sector. The port, with a 2.3 km quay wall, is able to simultaneously service seven cruise vessels (or 25k passengers) in a single day. The facility’s flagship is the Hamdan bin Mohammed Cruise Terminal, which is the world’s biggest single, covered cruise terminal operation, with the capacity to receive 14k passengers a day.

A positive indicator that the emirate is rebounding from the negative impact of Covid-19 can be gleaned from the news that customs transactions have jumped by 24.5%, to 11.2 million transactions, over the first nine months to September. Over the same period, customs declarations were 33.0% higher at 9.7 million, whilst the number of business registration transactions rose 84.5% to reach 201k. Dubai Customs also completed 648k refund claims, 358k certificates and report requests, and 257k inspection-booking requests as of the end of September 2020. After a torrid summer, these figures indeed show that Dubai’s strong and resilient economy can weather external economic shocks.

In the first twenty years of the century, Dubai’s non-oil external trade has increased more than ninefold from between 2000 and 2019, rising from US$ 38.9 billion in 2000 to US$ 346.3 billion in 2019; in HI, total trade reached US$ 150.1 billion. Customs transactions, completed by Dubai Customs, grew 44% in 5 years (2015-2019) to 13 million transactions at the end of 2019, compared to 8.9 million transactions in 2015. The growth reflects the resilience of the national economy and the pivotal role Dubai plays in the global trade. Customs transactions in H1 2020 grew 41% to 7.252 million transactions compared to 5.138 million transactions in the corresponding period in 2019.

Dubai’s Supreme Council of Energy had good news for residents, with the announcement of reductions in the fuel surcharge for both electricity – 23.0% lower at US$ 0.0136 per kilowatt hour – and water, down 33.3% to US$ 0.0109 per Imperial Gallon. The fall in prices was driven by an increase in solar energy production, with clean energy accounting for 9% of the emirate’s energy mix. The Dubai Clean Energy Strategy 2050 aims to see it account for 75% of energy needs by then.

For the ninth consecutive month, prices at UAE pumps will remain unchanged in December, with Special 95 and Diesel retailing at US$ 0.561 and US$ 0.670 per litre. The Fuel Price Committee has kept the prices at the same level almost since the start of Covid-19. By last Friday, global oil prices had seen four consecutive weekly gains, including last week’s 7.2% ending 27 November. There has been a new addition to some of Dubai’s petrol forecourts – E-PLUS 91 to be used for low compression engines. The new range will be available across 44 existing ENOC service stations and 20 Emarat stations, catering to the specific fuel requirements of customers who primarily operate commercial fleets, including buses, taxis and buses.

The region’s largest financial technology hub, DIFC FinTech Hive, has signed an historic agreement with Israel’s FinTech-Aviv, established in 2014, and which already counts 6k start-ups and 330 R&D centres among its 30k+ Israeli and worldwide members. Both parties will work together on events, knowledge sharing, talent development and facilitating mutual introductions and referrals for firms keen to expand in each respective jurisdiction. The agreement can only cement DIFC, as one of the world’s top ten FinTech hubs, and the partnership with its Israeli counterpart can only further support the UAE in facilitating economic growth via the global technology and innovation sectors.

Pursuant to a five-day hearing in April, the Financial Markets Tribunal (FMT) has upheld a DFSA enforcement action against Dr Mubashir Ahmed Sheikh for serious misconduct, including misleading and deceptive behaviour, and knowingly acting dishonestly. The decision, which was final, saw him fined US$ 225k and having to pay restitution of more than US$ 645k; the latter represented interest and the cash he had previously withdrawn in a deceptive way from MAS of which he had been the chairman, senior executive officer and majority beneficial owner; MAS had been a DFSA authorised firm before entering liquidation in November 2015.

Following a presidential directive from President His Highness Sheikh Khalifa bin Zayed Al Nahyan and HH Sheikh Mohamed bin Zayed Al Nahyan, 6.1k Abu Dhabi citizens will receive disbursement of US$ 1.9 billion of housing loans, exempting retired low-income citizens from repaying the loans. This largesse is the second part of the emirate’s 2020 housing packages of US$ 4.2 billion, coinciding with the celebrations of the 49th National Day.

After seeking a continuation of its business, and a reversal of an earlier decision to liquidate, more than 5% of the shareholders of Arabtec Holding failed and the proceedings will now continue. The company will be liquidated through a “controlled and efficient programme” to maximise value for stakeholders and “over the coming weeks, the company’s board and management will work closely with regulators and stakeholders.” Latest figures show that Arabtec had total liabilities of US$ 2.8 billion, including US$ 490 million to banks and over US$ 1.4 billion to trade creditors.

The bourse opened, for a shortened two-day week, owing to National holidays, on Sunday 29 November and, 260 points (12.0%) to the good the previous three weeks, closed flat to close the same on 2,420 by Monday 30 November. Emaar Properties, US$ 0.18 higher the previous four weeks, traded US$ 0.02 lower at US$ 0.87, whilst Arabtec is now in the throes of liquidation, with its last trading, late in September, at US$ 0.14. Monday 30 November saw the market trading at much improved levels of 307 million shares, worth US$ 162 million, (compared to 280 million shares, at a value of US$ 66 million, on 26 November).

For the month of November and YTD, the bourse had opened on 2,188 and 2,765 and, having closed the month on 2,420, was up 232 points (10.6%) in November but well down by 345 points (12.5%) YTD. Emaar traded lower from its 01 January but higher from its 01 November starting figures of US$ 1.10 and US$ 0.78 – down by US$ 0.23 but up by US$ 0.09 – to close November on US$ 0.87. Even at the beginning of the year, Arabtec was struggling, trading at US$ 0.35 and by the time stumps were drawn in late September, was trading at US$ 0.14 – a major fall from grace, considering that in May 2014 one Arabtec share was worth US$ 8.03. 

By Thursday, 26 November, Brent, US$ 3.90 (9.7%) higher the previous fortnight, gained a further US$ 3.65 (9.3%) in this week’s trading to close on US$ 48.63. Gold, US$ 81 (4.1%) lower the previous fortnight, regained US$ 33 (1.8%) to close on US$ 1,839, by Thursday 03 December.

Brent started the year on US$ 66.67 and has lost US$ 19.08 (28.6%) YTD but gained US$ 4.93 (11.6%) during the month of November to close on US$ 47.59. Meanwhile, the yellow metal gained US$ 260 (17.1%) YTD, having started the year on US$ 1,517 to close at the end of November on US$ 1,777, with November prices down US$ 201 (10.1%) from its month opening of US$ 1,978.

Copper is in top gear this week, surging to 30-month highs as several factors, including better than expected data from China, push the metal northwards, at a time when many base metals and iron ore continue to move higher, the main driver being the imminent global release of Covid vaccines. In October, economic data from the world’s second largest economy, including industrial output and fixed-asset investment, beat analysts’ expectations; the latter is of particular interest as it would seem to point that market support will continue into 2021. Last week’s trade deal with fourteen other neighbouring countries is another sign of China opening up its economy even further. Copper will also benefit not only from the increase in regional trade but also by the weaker greenback as it makes the metal, trading in US$, cheaper for overseas buyers. The copper price has been also been pushed artificially higher because of recent supply disruptions in Peru and Chile, which also moved inventory levels to historic lows.

Amazon is to pay bonuses, totalling over US$ 500 million, for its front-line staff, as its supremo, Jeff Bezos, praised them for “serving customers’ essential needs” during the pandemic. Permanent warehouse workers in the UK and the US will receive between US$ 400 to US$ 600, whilst part-time staff will be US$ 200 better off. The bonus comes at a time when Amazon – and similar companies – are under the spotlight for “dodgy” working practices in its warehouses during the coronavirus pandemic. Labour activists are calling for more worker protection as pandemic cases begin to surge again at the same time of the holiday shopping rush; they would prefer that more emphasis be placed on hazard pay, paid sick leave and better communication about outbreaks. The retail giant has seen sales (and profits) skyrocket (at the expense of the brick and mortars retailer) which will be further boosted by events like Black Friday and the upcoming holiday season; for example, Q3 sales at the internet giant were 37.0% higher at US$ 96.1 billion, with profits tripling to US$ 6.3 billion. This festive season sees Amazon creating 20k seasonal jobs in the UK.

In what its boss, Marc Benioff, called a “match made in heaven”, Salesforce is set to spend US$ 27.7 billion to acquire workplace messaging app Slack in what would be one of the biggest ever tech mergers – and the largest in the soaring cloud software industry, surpassing the US$262 billion Microsoft paid for LinkedIn in 2016. With a deal involving a cash payment of US$ 26.69, and .0776 of a Salesforce share, this would indicate a 55% premium paid to Slack’s shareholders. This is a lot of money for a company that posted a US$ 139 million loss in 2019. Founded in 2009, as an alternative to email, the company was interesting Bill Gates’ tech giant some five years ago, but which decided to go inhouse and developed its own Microsoft Teams platform, now a major rival; this is bundled in with its Office Software. At its 2019 IPO, Slack was valued at around US$ 20 billion but since then, it has gone in the other direction compared to the many other tech firms; Slack saw its share value slide on Wednesday by 10.7%. It seems that time is running out forMarc Benioff, who now has to expand and acquire a major asset, rather than growing internally by expanding the company’s software offerings. In this day and age, the big boys will simply eradicate smaller competitors just because of their size and dominance in the market.

You will rarely see such figures as Zoom’s Q3 results, with net profit surging 90 times, year on year, to over US$ 198 million (compared to just over US$ 2.2 million in Q3 2019), as revenue nearly quadrupled to US$ 777 million. No surprise then to see its YTD share value jump from US$ 69 to US$ 478; however, on Tuesday they slid 16% lower. The company has revised its full year revenue to almost US$ 2.6 billion, with Q4 forecast at US$ 811 million. By 30 September, the video communications platform was servicing 434k customers, with more than ten employees. Zoom has seen an 80% rise in R&D expenditure to US$ 25 million, equating to 3% of revenue.

Having fallen over 8.0% last Friday, Bitcoin soared to a record high on Monday to touch almost US$ 19.9k, as its 2020 rally steamed ahead, now 170% higher over the year; the main drivers continue to be that it is seen as a safe haven, an apparent acceptance that it is fast becoming mainstream, as well as being a hedge against inflation. Smaller players have also benefitted with the likes of ethereum and XRP, moving in tandem, gaining 5.6% and 6.6%, respectively. There are reports that Square’s Cash App and PayPal, which recently launched a crypto service to its more than three hundred million users, have been in the market for all new bitcoins.

It is reported that German prosecutors are closely evaluating evidence supplied by Apas, an independent government watchdog, that indicates that auditors, EY, may have broken the country’s laws during its audit of the disgraced Wirecard. The firm had been the auditors for a decade and had never given a qualified audit in that time, before discovering this year that US$ 2.3 billion in the accounts did not exist. In a special audit, carried out by another big four firm, KPMG, it was reported that EY was asked whether they had followed normal procedures when checking bank account balances – he said the firm had not confirmed this, adding that “what we did (in the special audit) was not rocket science. It wasn’t done (before by EY).” In 2017, Apas also alleged that EY was just days away from qualifying the German payments company accounts and on 29 March warned its client that a qualified audit was imminent – and sent them a draft copy; the qualification was around alleged accounting manipulations at an Indian subsidiary and that its investigation was being stonewalled by Wirecard executives. However, by 05 April, the Wirecard audit report concluded that “our audit has not led to any reservations”. It appears that Andreas Loetscher, one of EY’s auditing partners at the time, left EY in 2018 to become Deutsche Bank’s head of accounting. The following three paragraphs form part of a media release by the bank on 26 October 2018.

“The Supervisory Board of Deutsche Bank (XETRA: DBKGn.DE/ NYSE: DB) has decided to recommend the appointment of Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft as external auditor. This recommendation will be put to shareholders at the 2019 Annual General Meeting (AGM).

New European and national regulations require a rotation of the external auditor at regular intervals. Therefore, it is not possible to extend the mandate of the bank’s current external auditor, KPMG AG Wirtschaftsprüfungsgesellschaft. The tender process for a new external auditor was announced in February 2018. An extensive and rigorous evaluation process held over the last seven months was run independently by the Audit Committee of the Supervisory Board.

Deutsche Bank anticipates that following the appointment, the new external auditor will review the interim financial statements of the first quarter of 2020 and will be recommended at the 2020 AGM as external auditor for the full financial year 2020. The auditor’s mandate will cover both Deutsche Bank AG and the Deutsche Bank Group.”

On 31 August 2020, the bank decided it would not propose EY as auditor for 2020, according to AGM invitation.

Since hitting 25-year lows in September, UK’s biggest bank, HSBC has seen its share price skyrocket more than 50% in the ensuing three months; however, its share price is still down about a third YTD.  Although head-quartered in London, more than 50% of its profits emanate from Asia. Despite increasing regulatory and economic pressure in its two key markets – Europe and Asia – it posted better than expected Q3 figures, even though profits were 46% lower, they were still at US$ 3.2 billion. Although its cost-cutting measures and an improved business environment are the main drivers behind the recent share boost, another is that the bank may resume paying dividends.

Dyson is planning to invest US$ 3.7 billion over the next five years, mainly on new technologies and products, as part of its strategy to double the number of products it sells and to expand into new areas. Although currently known for its vacuum cleaners, air purifiers and hair dryers, future investment will see more engineers and scientists in fields such as software, machine learning and robotics.

Any chance of Arcadia escaping collapse disappeared when a potential life-saving US$ 67 million loan from Mike Ashley’s Frasers Group fell through. Philip Green’s retail empire Arcadia – which includes Topshop, Burton and Dorothy Perkins in its stable of clothing brands – was put into administration on Tuesday, with Deloittes appointed administrators; its collapse will see the end of 13k jobs and 500 shops. It was only five years ago that Arcadia’s owner, said to be worth US$ 1.6 billion, sold BHS for just US$ 1.30 to Dominic Chappell, a former bankrupt businessman, with no retail experience, only for it to collapse within a year leaving 11k out of a job, along with a huge hole in its pension fund.

Debenhams has joined Arcadia to make it a black week for the UK retail sector, after the failure of last-ditch efforts to rescue the chain’s 124 shops; the closure, brought about by the last remaining bidder, JD Sports, withdrawing from negotiations, will see 12k employees likely to lose their jobs. Restructuring firm, Hilco has already started the process of clearing stock but Debenhams outlets will continue to accept the firm’s store cards and process returns as normal. The two main drivers behind the failure were the negative impact and subsequent movement restrictions caused by Covid-19 and the fact that it was too slow to embrace the arrival of on-line shopping.  (The ME franchise owner of Debenhams, Kuwait’s Alshaya Group, has confirmed that its regional outlets, including six in the UAE, will continue business as normal.)

For the third time in a year, Bonmarché has fallen into administration, with the possibility of 1.5k job losses and the closure of 225 outlets. The women’s fashion chain was owned by retail tycoon Philip Day, whose other brands – Edinburgh Woollen Mill, Peacocks and Ponden Home Stores – all falling into administration last month. The administrators confirmed that the chain’s shops would continue to trade for the time being, whilst options are being explored.

Following on from Tesco and Morrisons promising to repay a total of US$ 1.15 billion for business rates pandemic relief they received as support, Sainsbury’s and Aldi have confirmed they will hand back a combined US$ 725 million of business rates relief. Some of them have been criticised for taking government support of US$ 2.6 billion, while paying dividends to shareholders, at a time when sales boomed in the crisis. However, some big-named chains have decided to hold on to their government funds, including Marks and Spencer, Co-op and Waitrose, for a variety of reasons. M&S indicated that most space in its shops was for clothing and homeware which had to close down during the lockdown.  The Co-op said the amount it had spent on protecting staff and customers outweighed the savings from rates relief, whilst Waitrose claimed the relief would help offset the “significant” sales lost while its John Lewis shops were closed.

The recent trend of consolidations of the bigger data providers continued this week with news that S&P Global is to pay about US$ 39.0 billion in stock to buy IHS Markit; its offer price of US$ 0.2838 per share equates to a 4.7% premium, resulting in S&P shareholders owning 67.75% of the combined company on a fully diluted basis. The newly enlarged entity will have an enterprise value of about US$ 44.0 billion, including the assumption of US$ 4.8 billion in net debt. This deal is the world’s second-largest acquisition of 2020, surpassed only by the US$ 56.0 billion merger among some of China’s biggest oil and gas companies, selling their pipeline networks to a new national carrier. The deal has to pass through regulatory scrutiny which may prove to be a problem, as antitrust is rapidly becoming a hot topic with government agencies.

As coronavirus restrictions limit attendances at Walt Disney theme parks, the company has announced that it will have to lay off some 32k workers, 4k more than anticipated just two months ago. Last month, Disney announced it was furloughing additional workers from its theme park in Southern California, whilst theme parks in Florida and overseas – Shanghai, Hong Kong and Tokyo – reopened earlier in the year, with strict protocols in place, although its Paris facility was forced to close again last month.

Certainly not the first – and certainly not the only corrupt – UN body, the UN Development Programme is facing several allegations of fraud. The latest circles around its Global Environment Facility, established in 1991, as part of the World Bank to fight environmental challenges. Since then, it has become an independent body and has dispersed over US$ 21 billion in 170 countries, including US$ 7 billion in projects managed by the UNDP. A recent draft report notes that there had been “financial misstatements”, worth millions of dollars, across the GEF portfolio.  It commented that there were signs of “fraudulent activities” at two country offices along with “suspicions of collusion among various project managers”. The latest audit comes five years after the last one carried out in 2013 and comes on the back of concern expressed by various donor countries, including US, France, Australia and Japan, who have called for an independent enquiry.

It is reported that Kuwait’s Gulf Insurance Group is in line to acquire Axa’s insurance operations in the Gulf region for US$ 269 million, subject to regulatory approvals; this will include the company’s stakes in Axa Gulf, Axa Cooperative Insurance Company and Axa Green Crescent Insurance Company. Upon completion of the transaction, probably by Q3 2021, Gig will own 28.05% of the shareholding of Axa GCIC, as well as Axa Group’s entire shareholding interests in Axa Cooperative Insurance Company in Saudi Arabia and 100% of the share capital of Axa Gulf in Bahrain. Gig, 43.6% owned by Canada’s Fairfax Financial Holdings, is also the largest insurance group in Kuwait and listed on Boursa Kuwait; it has over one million customers and thirty branches in the GCC. Just as what is happening in the banking sector, the Gulf insurance industry is set see an era of consolidations, as digital transformation, amid Covid-19, is placing renewed importance on scale among insurers, whose profits are under pressure because of the pandemic.

An InterNations study, using data from 15k global expats collected just before the advent of Covid-19, ranked sixty-six cities based on five criteria – Quality of Urban Living, Getting Settled, Urban Work Life, Finance & Housing, and Local Cost of Living. Valencia came out on top, followed by Alicante, Lisbon, Panama City and Singapore. Strangely, Dubai only made 20th, with Abu Dhabi (10th) and Muscat (14th) ahead of the emirate. To an ex-resident of Kuwait, it was both a surprise and a disappointment to see Salmiya named the worst city in the world for expats to live and work. It came in at the bottom of the pile in two categories – climate/leisure and health/environment, along with local transportation coming in marginally better at 61st. In what you used to be one of the better locations in Kuwait, it serves as a warning that in any walk of life, if you take the foot off the accelerator, you will soon fall behind. One of the drivers behind Salmiya’s demise could be the fact that the Kuwait administration has been running a campaign to cut the number of expats to redress the current imbalance of 71:29 expats. Prime Minister Sheikh Sabah Al-Khalid Al-Sabah wants to reverse that ratio to 30:70.

Latest figures from the Australian Bureau of Statistics show that capital city house prices, already making a strong Covid-19 recovery, are likely to increase even further in the new year. Perth is expected to be the star performer, with a possible double-digit growth in 2021, driven by recovering commodity prices and increased capital investment, followed by Sydney (because of proposed changes to land tax law and stamp duty) and Adelaide. The forecast sees price rises starting from 5%, with Melbourne being the weakest, due to its extended second wave lockdowns, higher numbers of business failures and a slowing job market. In October, Australians borrowed a new record US$ 16.9 billion in the month to buy property, made “easier” by historic low rates, aggressive government stimulus and the winding back of responsible lending laws.

One of Australia’s leading companies, cereal and snack-maker Freedom Foods is being investigated by the corporate regulator ASIC for a series of “significant” accounting problems, with it revealing that its earnings would be impacted by US$ 420 million in write-downs. On Monday, the beleaguered company announced that its US$ 8 million 2018-19 profit has been downgraded to a US$ 103 million loss, not helped by the write-downs. Its auditors, Deloittes, have noted that over the past five years, some executives had paid themselves extra (without getting board approval). The Perich family, Australia’s largest dairy farming family, owns 54% of Freedom Foods., whose share trading has been suspended since June when they were trading at US$ 2.10, down from its September 2018 peak of around US$ 5.00 Things came to a head at Monday’s shareholders’ meeting, with questions asked about company oversight and the scope of the write-downs, including US$ 53 million and US$ 43 million in relation to goodwill/brands and for “out-of-date, unsaleable and obsolete inventory”. To fix its balance sheet, the company shareholders have been asked to stump up US$ 200 million, through capital raising, but some are asking what Deloittes, their auditors, have been doing, as a forensic accounting investigation by PwC has discovered some “significant” accounting problems for the company, dating back a few years.

Starting last Saturday, China has imposed taxes of up to 212% on Australian wine, indicating that these measures were temporary (but no dates were given) to stop subsidised imports of Australian wine. Their argument has always been that some Australian wine is being dumped by being sold cheaper than in its home market, through the use of subsidies. China is Australia’s biggest market for its wine, accounting for 39% of the total exports. Following last Friday’s news, Treasury Wine Estates, one of the world’s biggest winemakers, with leading brands such as Penfold and Wolf Blass, saw its share price slump more than 13%, whilst other firms, including Casella Wines and Australian Swan Vintage, have been singled out by Chinese regulators. In recent months, Beijing has targeted Australian imports including coal, sugar, barley and lobsters amid growing political tensions, not helped by Australia’s stances on backing a global inquiry into the origins of the coronavirus, apparent support of Hong Kong democracy and the Uighur Muslims. Even before the onset of the pandemic, the writing had been on the wall, as Chinese authorities have been warning Chinese students and tourists against travelling to Australia, citing fears of racism.

Having contracted 24.0% in Q2 and 7.5% in Q3, the Indian economy formally went into technical recession for the first time since 1996. In March, Narendra Modi imposed one of the world’s strictest lockdowns which had such a negative impact on the economy, and the end result resulted in a marked decline in domestic demand and consumer confidence. Despite the Prime Minister’s efforts, the country now is second to the USA when it comes to Covid-19 infections, with 9.3 million cases. In Q3, Asia’s third largest economy reported trade, hotels, transport and communication declining 15.6%, whilst the likes of electricity/gas, agriculture and manufacturing moved into positive territory by 4.4%, 3.4% and 0.6% respectively. Since the onset of the pandemic, the government and central bank have introduced various stimulus packages totalling US$ 405 billion, equating to 15% of the GDP, with the Reserve Bank of India cutting rates by 115 basis points.

No surprise that the OECD is not too bullish on any UK recovery, forecasting that only Argentina will perform worst on the global stage and that, by the end of 2021, its economy will still be 6% lower than its pre-pandemic level; this is in contract to the global economy that will be back at this level by then. This year, the UK economy will contract by 11.2% followed by expansions of 4.2% and 4.1% in 2021 and 2022. It expects that unemployment will rise from its current level of 4.0% to 7.4% next year – but other countries will see worse declines. It ends with its old chestnut that it is important for a Brexit trade deal to occur this year and failure would “entail serious additional economic disturbances in the short term and have a strongly negative effect on trade, productivity and jobs in the longer term”. Time will tell that they might have got their forecasting wrong again.

With the reintroduction of restrictions, as a second wave of Convid-19 sweeps across Europe, it is no surprise to see that economic data showed that business activity both in the UK and Eurozone headed south in November.  The UK composite PMI declined 3.1 to 49.0, whilst the IHS Markit’s composite Purchasing Managers Index for the eurozone sank 4.7 to 45.3. (50.0 is the line that separates contraction from expansion). A separate PMI, covering the eurozone’s services, slipped from 46.9 to 41.7, whilst a similar index in the UK recorded a fall of 3.8 to 47.6. Having suffered a massive 25% slump, following the first outbreak in March/April, the BoE is forecasting a 2% contraction in Q4. However, some sort of confidence returned towards the end of November, with news of effective vaccines which saw business confidence rise to its strongest since February’s five-year high.

Figures were worse in France with marked falls in boththe composite PMI, down 6.9 to 40.6 and the PMI services sector dropping from 46.5 to 38.8. As expected, Germany performed better with the composite index, still in positive territory, at 51.7, down from 55.0, whilst the IHS Markit’s final services PMI fell to 46.0 from 49.5. Meanwhile, results from Spain were dour, where its service sector activity shrank from 41.4 to 39.5 in November and Italy where its services sector contracted 7.3 to 39.4 and its composite PMI dipped 6.5 to 42.7. With figures like these, it is hard to argue that the UK would be better off within the EU umbrella.

To further add to the EU’s woes, it seems that German politicians are worried about whether the country can afford such generosity when it comes to emergency coronavirus aid. The 2021 budget indicates a near doubling of new borrowing to US$ 218 billion which comes on top of the US$ 264 billion of debt this year, their highest in history. The age-old policy of ‘schwarze null’, ‘black zero’ has had to fall by the way because of the catastrophic impact of Covid-19. The government money piled out – a US$ 1.6 trillion programme of subsidies and grants, followed by a US$ 160 billion add-on in June, as well as the suspension of the constitutional ‘debt brake’ which traditionally limits the budget deficit to just 0.35% of GDP. A new uptake on when Germany sneezes, the EU will catch a cold.

Meanwhile, the EU continues negotiations in the UK, with reports that some European countries, surprisingly(?) led by France but also including the Netherlands and Denmark, are urging M Barnier to be tougher and obtain more concessions from the Johnson administration. It is reported that the PM is “feeling optimistic” but was also “confident and comfortable without a deal”, whilst the EU team noted that there was still much work to be done on fishing and the level playing field. Maybe there could be major developments over the weekend.

The EU is still in turmoil, as Hungary and Poland (with the possibility addition of Bulgaria) continue with their veto of the EU US$ 2.2 trillion budget pandemic recovery fund which can only be approved with all 27 member states agreeing; the fall-out is the two countries’ protest at a rule-of-law condition that ties payments to compliance with EU values. To some, it seems that the Brussels bureaucrats want to ensure that all countries will be tied to the community because of their financial constraints of accepting the terms of such a huge payment which has to be repaid. Then there are concerns that if no solution is found, this will see billions of euros of aid for some of the bloc’s struggling economies being frozen which will derail any immediate EU recovery.

It seems highly likely that the UK will be the first country in the world to obtain and start using vaccine to fight against Covid-19. Approval has been given for the use of the BioNTech/ Pfizer’s vaccine to start a crucial mass inoculation programme but prime Minister, Boris Johnson, has warned of the massive logistics challenge to vaccinate the entire 67 million population. According to available data, it is 95% effective in preventing the disease. In contrast, the EU could be up to two months behind the UK, as the European Medicines Agency has said it is highly unlikely to decide on approval of the jab until the end of the month. The country was the first to secure an order in July for 30 million doses, later topped up by a further 10 million. There is every chance that this news could surprise the global doomsayers and that the UK could see a final lifting of restrictions which in turn would see an economic recovery at least two months ahead of Europe. A mix of pent-up demand, high savings levels and a massive jab in the arm for business confidence could see the UK retuning to “normal” business quicker than expected by many so-called experts.  Ain’t No Stoppin’ Us Now!

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