GoDubai
  
  
  
  
Citylife > Press Release
  Home Contact us Add to Favourites
Most Recent Postings
More Press Releses
Featured Sections

Event Finder
A daily roundup of exhibitions, promotions and other events in Dubai and the rest of the Emirates.
Submit an Event
Latest Dubai Press Releases >>

 
  Share

By Christopher Dembik, Head of Macro Analysis, Saxo Bank


Dubai, United Arab Emirates -  14, August 2019:  The negative Q2 growth print is the perfect example of the power of credit impulse. However, contrary to an increasing number of market participants that consider the UK economy is already in recession that began in April, we think that Q3 GDP growth bounce is on the cards. We explain you why. 

The UK growth is like a bouncing ball: in the first quarter, it grew by 0.5%, higher than the average of the G7 countries, and in the second quarter, it went into negative territory at minus 0.2%, rising fears that recession has started. This downturn resulted from factory shutdowns and the fallout from pre-Brexit stockpiling. However, more fundamentally, the disappointing Q2 growth print reflects the lack of new credit growth and the power of credit impulse.

As you can see in the chart at the bottom of the page, over the past ten years, the UK economy has mostly been driven by high inflow of new credit, especially from the period 2015 to 2017, when credit impulse reached a record high of 11% of GDP in the immediate post-referendum era. Since then, credit impulse has sharply fallen and has already experienced seven consecutive quarters of contraction.

This is, in our view, the primary factor driving the UK economy down. The length of the contraction is similar to that of the GFC, but with a smaller amplitude (credit impulse is running at minus 4.4% of GDP according to our latest update). The lack of new credit growth coupled with four consecutive quarters of contraction of business investment are strong arguments in favor of upcoming recession.

The UK economy is flirting with recession…but it should avoid it in Q3

We have called for UK recession for a while, as a consequence of contraction in credit impulse. However, contrary to an increasing number of market participants that consider the UK economy is already in recession that began in April, we think that Q3 GDP growth bounce is on the cards. We expect stagnation – and not contraction – in the third quarter. The first GDP estimate is expected on November 11th – after initial Brexit deadline

This “unexpected” rebound that we call for is likely to be driven by stockpiling boost in lead up to Brexit deadline of October 31st (like the 0.5% rise in Q1), and slightly better service sector linked to improved consumer sentiment. In line with this, we notice some signs of economic revival: the July services PMI rebounded to 51.4 and the construction PMI, though remaining at very low level, increased to 45.3. In addition, consumer economic sentiment continues to improve.

GfK personal financial situation over the next 12 months is back to 7, its highest level since September 2018. This trend is explained by higher wages and higher gross disposable income per head, which positively affect household's final consumption expenditure (+1.8% YoY in Q2). On the top of that, we may have a less negative figure for UK car production in Q3 as summer shutdowns have been advanced to Q2, thus affecting less production data this quarter.

Considering the combination of stockpiling and positive consumer sentiment, we think that the likelihood of another quarter of contraction (leading to technical recession) is remote. Stockpiling will bring some short-term relief to the economy, but higher stockpiling is not the sign of a very dynamic economy. The UK economy is not in good shape to face Brexit. The UK Q3 growth that we expect to be slightly above zero will be a sign of false stabilisation. Recession is still looming at the corner.

Snap elections are unlikely to bring clarity

The two major factors that usually cause a recession, namely the lack of investment and the lack of new credit in the economy, are already in place. What is missing nowadays is the trigger for the recession to occur: it could be a further deterioration of global growth, in relation to trade war, or a no-deal Brexit by accident.

So far, this is not our central scenario, as we expect snap elections in coming months to postpone Brexit deadline once again. This seems to be confirmed by July Cabinet appointment. The most important appointment was that of Dom Cummings, acting as de facto Chief of Staff of Boris Johnson. Cummings is foremost a campaigner which tends to indicate that the Prime minister is getting ready for election.

His strategy will likely be to reunite the Leave vote behind the Conservative Party, to get rid of the Brexit Party by the way, and to win the election against a Remain vote that is widely divided between many parties. If this scenario happens, it means that tensions will probably rise between London and Brussels during the campaign period, notably about the backstop, and no matter who will win the election, it is improbable that it will bring clarity when it comes to Brexit.
Recession is only a matter of time, but it is unlikely to be officially announced this year.

 



Posted by : GoDubai Editorial Team
Viewed 4813 times
Posted on : Wednesday, August 14, 2019  
Replication or redistribution in whole or in part is expressly prohibited without the prior written consent of GoDubai.com.
Previous Story : Gold reigns as global bond yield collapse continues
Next Story : Evonik sticks to full-year outlook despite cooling economy
Email this article Print this article

Share this article with your friends and followers
NewsVine

Comments

Back to Top  
Most Viewed Press Release posted in the last 7 days
Get Festive Ready With Prestige Cosmetics Holiday Collection
Chlo's Iconic Carlina Sunglasses In a Precious New Interpretation
PACE to Space
Master Chronometer: Raising Standards
Holiday Hair-Styling Essentials from VIERRO
Luxe Beauty Gifts for your Loved Ones this Festive Season
Arabic version of Zoho Creator launched to help businesses create custom applications
Formula 1 meets Virgin Hyperloop One: California-based Developer to Showcase Pas...
Indulge in New flavours sprinkled With A Dash of Bollywood & Nostalgia at Hitchki
Life-changing Raffles Announced for 25th Edition of Dubai Shopping Festival
Union Coop Pays Tribute to the Martyrs on Commemoration Day'
'Tis the Season to Be Glamorous - Beauty Essentials from GlamBeaute.com!
Cisco Advances Solutions to Simplify Cybersecurity Processes in Saudi Arabia
Emirates Post issues commemorative stamps to celebrate the UAE 48th National Day
ENEC Releases 'Tasamoh' a Rehabilitated Green Turtle and organizes Beach Cleanu...
Berkan Steakhouse Launches in Dubai
Robinsons celebrates UAE National Day with leading Emirati brands and a host of ...
Dunecrest American School Celebrates the UAE National Day
Homegrown Jewellery Brand Sumaya Bakkar Collections Curated Festive Gift List
Zambian President affirms commitment to bolster UAE ties
China Homelife the Largest China Sourcing Platform Set to Showcase a Wide Variet...
Spice Up with Shades of Brown from 2XL Furniture & Home Dcor
Your Holiday Gift Guide for Her
Italy breaks ground for its Pavilion at Expo 2020 Dubai
LG Electronics Announces Leadership and Operational Changes Ahead of 2020
Dubai Cares' Volunteers bring hope to children in remote village in Senegal
Celebrate the 48th UAE National Day at Dalma Mall'
Pupils at Dubai Heights Academy mark 48th National Day with two days of traditio...
Arabian Automobiles INFINITI presents the apex in road safety with the QX50'
GROHE Goes ZERO Carbon-Neutral Production by 2020
du & National Archives offer nostalgic journey into UAE's past on 48th National Day
Dubai Festival City Mall Visitors In for A Jolly Festive Season Like No Other in...
Customs World inks MoU with Indonesia to roll out World Logistics Passport
Emotional and highly dynamic: the design of the MINI John Cooper Works GP.
The Middle East Organic Market's Premiere Business Event Opens In Dubai
Statement Cardigans
GROHE received the Red Dot: Brand of the Year
Sumo Sushi & Bento Celebrates UAE National Day With an Exclusive Bento Offer for...
New year, New You with Lunette
Cole Haan Makes Its Debut at Sole Dxb 2019 Showcasing Footwear Collaborations
Ministry of Economy launches new development plan as part of the National Progra...
Best Menswear Items
Annual DIAC Conference examines impact of UAE Arbitration Law
Uncovering the Beauty of Mechanics'
Set Up Stylish Outdoor Spaces with 2XL Furniture & Home Dcor
Emiratis and expats set off to a two-week Camel Trek across the UAE desert
Lewis Hamilton Tops Off Sixth World Title With Victory at Formula 1 Etihad Airwa...
Air Cargo Peak Season off to Slow Start, Annual Demand down 3.5% in October
ENEC welcomes visit by senior Emiratis to headquarters in Abu Dhabi