One of the business networking events I attend is called Connect 4 Success, C4S, and we meet once a month in Marlow. This group tends to be a bit more IT focussed with representation from solicitors and the occasional banker.
Members of C4S were invited to a presentation held at Wycombe Wanderers, on February 7th, and co-hosted by the Wasps. The evening was divided into two with a talk from the Wasps CEO and a speech by an Economist from the RBS.
The talk was good, with lots of detail and a picture was painted of a world economy with many unbalanced elements. I scribbled a few notes in an attempt to retain the key messages.
So what did the man from the RBS say?
Well his last slide was full of legal mumbo jumbo and disclaimers that basically said that what ever I or we heard was not said! Thank you RBS so you will sue me to hell and back will you?
Now for the serious stuff:
World picture, slow down not slump
World GDP has doubled (India and China).
Huge Chinese trade surplus of 1.5 Trillion Dollars. (China won’t want the dollar to collapse)
Huge US deficit, house prices are going downwards in the states.
US banks exposed in a similar way to the 70s and 80s with Latin America exposure.
The US economy is in recession for sure.
The UK economy is a different story
The UK finished 2007 in good shape with good growth. (Probably too good)
The UK can grow at 2 2.5 % without too many problems.
Last year we saw inflation pick-up and the Bank of England take action.
Interbank rates are under control. (Well past the Northern Rock debacle)
House prices are moderating.
We have more employment.
The corporate sector is ok.
We are not alone, the EU seems to be ok also.
Asia seems ok.
There are some issues to be worried about, in the UK at least
The interest rates are coming down to help business.
The public sector costs are going up.
The consumer does not feel too good. (energy prices and debts)
The taxes for the consumer are likely to rise.
Income growth and house price inflation were at odds with each other and were not sustainable.
The savings rates are too low and need to rise.
So what will 2008 bring?
More volatility.
The era of boring solid growth is over. (Things will be more exciting for economists nice to know that)
Imported deflation is over. (The prices of manufactured goods can only go upwards now, the end of falling prices)
The US banks. Ah the US banks. What else are they hiding? If all the dirt has been exposed then 2008 will be a difficult year. If there are more skeletons then we can expect severe problems.
My reading of all of this?
Not as doom and gloom as the media would have us believe. They like all this bad news as they get to fill column inches. The UK should be able to weather this storm and perhaps we are starting to see the US being decoupled from the rest of us. Remember Japan? They were in severe trouble and we seemed to hardly notice. Perhaps we are moving into an era where need to worry more about China and India? China has yet to sneeze.