In the spring of 2007 I hosted a gathering for a band of insurance professionals. One from the most popular speakers was my old friend the economist Roger Martin-Fagg. He was his usual entertaining self, but took everyone unexpectedly by suggesting the world economy was around the brink of your meltdown such of which we’d never seen before, and it also was about to happen soon – probably within calendar year. Yes, he predicted the financial crash of 2008 annually before it genuinely happened.
Now in Spring 2007 the planet economy was doing very nicely thanks a lot. Following three consecutive numerous good growth, averaging 3.8% it had been expected to fall only slightly in 2007 to a few.6%. Meanwhile the UK was doing virtually too. House prices had risen from about £150,633 in January 2005 to £184,330 in May 2007 – an expansion of 22.4%, whilst wages grew by typically over 5% each year between 2004 and 2007. Inflation for the other hand was in order and only rose by generally 3.25% within the same period. Furthermore, between 2003 and 2007 the FTSE All Share Index grew by 49%, so overall citizens were feeling pretty optimistic regarding the prospects in the future. No one, aside from Roger was saying anything of a recession, don’t worry a full blown crash!
So, when Roger issued his dire warning, the overwhelming response ended up being laugh rid of it – from the same way we would laugh with a soothsayer predicting the conclusion of the earth. Eccentric yes, and prone to happen eventually, not anytime soon.
You would ever guess that those people who were there in 2007 are far less very likely to write off Roger’s opinions now than we’d have done previously.
I was therefore amazed, and heartened to obtain his latest Economic update, penned on 16 June. Once again he could be at odds using the mainstream view, as well as is critical of others talking world economic prospects down. He opens his piece by saying the press has irresponsible inside way it truly is reporting our economic outlook. His opening paragraph reads:
“Last weekend the Daily Telegraph were built with a banner headline: ‘Britain’s biggest ever collapse in GDP wipes out 18 a lot of growth’. This statement is very wrong. I am concerned that men and women who are working to make the right judgement call are now being fed this nonsense. To be clear: 18 in years past our GDP was £1 trillion. It is now £2.2 trillion. The decline in spending in April was 20% about the previous April. The monthly flow of spending averages £200bn. 20% of this is £40bn. The media, as you may know, impact emotion and decision taking. That Telegraph article is therefore both economically illiterate and irresponsible.”
Wow! Hard hitting stuff. And the perpetuation for these comments remains to be evident soon after. In the Sunday Times on 21 June Sajid Javid is quoted as saying:
“We’ve seen a 25% fall in GDP by 50 % months. To put that in a few perspective, that is certainly 18 a lot of growth wiped out into two months.”
And that’s from the erstwhile Chancellor in the Exchequer, who really should be anything but economically illiterate!
In his update Roger procedes to suggest that, despite what the earth and his wife say, we are really not going to have a very recession. Indeed, whilst he acknowledges that quarter 2 of 2020 will likely be significantly negative, he expects quarter 3 being significantly positive, and predicts which the UK economy could grow by 8.5% in 2021, with all the World economy time for 2.5% growth the coming year too.
His argument is which the fundamentals to get a recession don’t exist within the same way because they did for previous recessions; rising prices and rates squeezing individuals and firms alike in 1979 and 1989, and banks stopping lending in 2008. The common factor is often a shortage of capital available, that is not the case these times. Households have experienced a lowering of income, but a greater fall of what they’ve spent, plus the UK Government is spending a supplementary £40bn on a monthly basis pumping new money into your system, so a huge amount here. Roger predicts a mini boom for taking off within the next month or two as a result of this excess cash within the system, while using only thing that can dampen it being the media reporting company closures, an increase inside the R well above 1, and stories of mass redundancies.
I don’t give reproduce all Roger’s arguments here – search for the whole article at https://www.ellisbates.com/news/june-2020-economic-update/ to discover the complete picture, but I would say his reasoning and logic are extremely persuasive. And I first would not bet against him. I also fully endorse his condemnation of sensationalist reporting inside media. They have for taking more responsibility for your message they send out as, rightly or wrongly, people do hear them. A more even handed and fewer melodramatic procedure for reporting would benefit all of us. After all, it’s well known the power of ‘fake news’ at this point, don’t we?
Sources of information:
World Economic Situation and Prospects 2007 (United Nations publication, Sales No. E.07.II.C.2), released in January 2007 accessed on 21 June 2020
Office of National Statistics UK House Price Index, accessed on 21 June 2020
Office of National Statistics Wages and Salaries average growth rate percentage, accessed on 21 June 2020
Office of National Statistics RPI All Items: Percentage change over calendar year, accessed on 21 June 2020
Swanlowpark.co.UK FTSE 100 and FTSE All-Share since 1985, accessed, on 21 June 2020