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 5844 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
Foreo Set to Break the Beauty Stratosphere According to Experts
Mother's Day Gift Guide 2020
Dina Akesbi joins Clio Beauty on the Professional Beauty GCC Mainstage on 18th Feb!
St Valentine's Day'
6 Trends That Will Dominate Beauty in 2020 According to Foreo
Korea's Number One Beauty Brand Innisfree All Set to Celebrate the Grand Opening...
Jaguar Land Rover on Tour Sheikh Hamdan's Falcons Dominate Hurr Category in Fakh...
V-Motif Western
Costa Coffee Introduces 4u Healthy Food Range Across All UAE Stores in Partnersh...
Rado True Thinline Les CouleursTM Le Corbusier'
Corum Admiral's Cup Legend 47 Worldtimer'
5 Ways To Bring Spring's Top Trends Into Your Wardrobe
HONOR Launches the Iconic Glass Designed HONOR 20 in the UAE
City of Gold Rewarded 200 Jewellery Shoppers With 4 Million Worth of Dubai City ...
Made in Italy: Top Picks from the Latest Deborah Milano Make-Up Range
Introducing Zeitun Premium Face Care Collection
Samsung's New Galaxy S20 Now Available for Pre-Order in the UAE
SPORTMAX 50th Anniversary Capsule Collection
Marks & Spencer, Britain's Best Loved Denim
Dubai Customs Graduates 1st Batch of “Dubai Customs Leaders” Program
Team Abu Dhabi Riders Grab Double Triumph On Dramatic Race Day in Kuwait
Italian Food Exports to the UAE Increases by 11%, Reports ITA Ahead of Italian P...
Aston Martin DBX Makes First Public Appearance in UAE
Union Coop to Sponsor the FAZZA Championships for People of Determination 2020
AS World Group Global Roadshow Promotes Expo 2020 Dubai at 33rd African Union Su...
Arla Foods Introduces New Baby&me Organic Products to Saudi Arabian Market
Spring is in the Air at West Elm
Now at IKEA Dubai you can buy with your time. IKEA's latest innovation converts ...
How to Beat Pigmentation with DERMAdoctor
Create the Ultimate Home Cinema Room With LG
Artificial Intelligence Seen to Play a Significant Role in Driving Success Rate ...
Parmigiano Reggiano Consortium Participates in Gulfood
Buyers Rush for Majid Al Futtaim's First ‘Elan' Townhouses at Tilal Al Ghaf
The Award-winning #burjumanfoodart Festival is Back by Popular Demand!
Heart-Winning Accessories from 2XL Furniture & Home Décor
Hyundai Launches the All New I30 N in South Africa
Rate Hawk is Live with Global Innovations Flagship Product TassPro and Itinerary
Karl Lagerfeld Valentines Special
Achieve Gorgeous and Radiant Skin in Only 90 Seconds
The Bentley Mulliner Bacalar – the Future of Coachbuilding
His Highness Sheikh Hamdan Bin Rashid Al Maktoum Opens Gulfood 2020
Cisco Launches a Comprehensive Security Architecture for Industrial IoT
Abu Dhabi University Celebrates UAE Innovation Month
UAE Community Takes Millions of Steps in Solidarity With Children Who Walk Long ...
“Planet Positive” is Tetra Pak's New Way of Doing Business
Hala and Etisalat Team Up to Strengthen Dubai Taxi Captains' Bond With Their Fam...
Sorbonne University Abu Dhabi (SUAD) to Host Open Day for Prospective Students
Tsitsipas Ready to Launch Another Bid for Dubai Duty Free Tennis Championships
KIZAD to Participate in GulFood 2020 to Showcase Competitive Advantage
Dubai Chamber Honours Top-performing Trading Companies