Director Maximiti Limited
Columnist
Share this content

I think a mini-recession could be on the way . Don't say you weren't warned

18th Jan 2016
Director Maximiti Limited
Columnist
Share this content

As if you did not have enough headaches with tax returns as the month slowly ebbs away , those of you who have taken to distracting yourselves by reading the headlines or listening to the news should be worried. Moderately to quite worried actually.

Only 6 months ago the economy seemed to be chugging along nicely and markets were steady and looking forward to a Santa Rally and possibly a FTSE at 7,000 .

Now, the markets are seriously unnerved , the price of oil is swooning , commodity prices have retreated underground and profit warnings , Brexit uncertainty is taking hold and company earnings are not quite meeting expectations. The wheels seem to be coming off economies around the globe.

But for me today's catastrophic news from Tata in South Wales had me sit bolt upright and contemplate the ripple effect of such a drastic action , something brought on by cheap Chinese steel which is what happens in a connected global economy. Add that to the North Sea woes and it's not just the chill winds of January that are blowing.

Are you going to warn your clients to pay heed to what is going on ?

Tags:

You might also be interested in

Replies (7)

Please login or register to join the discussion.

avatar
By Knight Rider
19th Jan 2016 11:58

Commodity Prices

Who would have thought that falling oil and commodity prices could herald so much bad news? Surely this should be earnings enhancing for all businesses and the equivalent of a tax cut for the consumer. Even mining companies benefit from lower oil and energy prices. I am reminded of the late Sir Michael Edwardes wishing North sea oil back in the ground when Sterling rose as a petro currency back in the early 1980s.

However the demise of the steel industry is indeed worrying. Not normally in favour of state intervention but it cannot be right that steel is dumped in Europe by state owned producers below cost when there is a downturn in the Far East. Perhaps a levy is required on imports to protect a strategic industry but the UK cannot do this without Brexit.

In the longer term falling commodity and oil prices seem to be at odds with the fundamentals of rising global demand and increasingly difficult supply (deep sea drilling) but at least we can enjoy lower fuel and other prices while they last.

Thanks (0)
Norman Younger
By Norman Younger
19th Jan 2016 20:40

State intervention

Could something have been done if were not in the EU straitjacket ?

Also not in favour of the state meddling but it got the banks back on their feet to an extent and was not done for reasons of dogma

Thanks (0)
avatar
By Knight Rider
20th Jan 2016 11:27

Banks

Bank bail outs are probably a justification for a steel bail out. Granted some stability was provided to the banking sector but it was outrageous that severance,bonuses and pensions were paid as if the businesses had not failed.

Would suggest that Government should intervene by using UK steel in Government contracts and /or temporarily halting imports before we all end up working in call centres and supermarkets! Job losses on this scale over such a short period risk the benefits of globalisation being overwhelmed by protectionism.

Thanks (0)
avatar
By Discountants
20th Jan 2016 14:19

We are due one

Over the last half century the west has suffered eight recessions with peaks in 1966, 1973, 1979, 1989, 2000 and 2007.

The average time between peaks is 8 years with a range of 6 to 11 years - therefore you would expect the next peak year to be 2015 in the range from 2013 to 2018.

I do not expect such a calamatious drop in output such as the 2008-09 recession (although central banks will not be able to cut interest rates by 5 percentage points this time and with an already large budget deficit and debt there will less room for a fiscal stimulus)

Looking back at history the most similar time to the last few years was actually the mid to late 1970's. Then you had a recession caused partly by too much debt followed by sluggish growth in productivity and real wages.

The next recession came along and corrected the last two issues - by making unemployment soar. If something similar happens this time expect unemployment to peak at between 4m and 5m :(

Thanks (0)
avatar
By wilcoskip
20th Jan 2016 15:33

Hey Ho

If it comes, it comes.  All you can do is build up some cash, minimise debt and costly commitments.  Which is a fairly sensible way to run your life and business anyway.

 

Thanks (0)
Chris M
By mr. mischief
20th Jan 2016 18:09

Steel fallacy

It's not just about the Chinese.  About 50% of the world's steel is recycled using arc furnaces not blast furnaces.  Clearly this is of long term benefit to mankind compared to dumping it in tips and so on.

Arc furnaces are a growth market in the UK and worldwide.  Blast furnaces are not.  No amount of intervention is going to change the market dynamics.

When I worked in industry, it was Russian and Brazilian steel.  It was actually pretty rubbish compared to the stuff we got from Llanwern and Port Talbot, and I would not mind betting that the same is true of the Chinese muck.

But supply and demand are both against blast furnaces whichever country they are in.

Thanks (0)
Norman Younger
By Norman Younger
20th Jan 2016 18:13

Batten down the hatches

I agree with wilcoskip .

There is little you can do but use common sense if you think it is coming.

Trouble is , the average punter has no understanding of the economic cycle , nor are many employed people

in a position to take much avoiding action 

When I was earning really well some year sago I always lived well within my means as I knew it may not last, but how many people face the challenge of a spouse who spends spends spends.....

Perhaps it needs to enter the school curriculum. Since 2007 I have been speaking to teenagers in schools explaining how economies work and more importantly what happens when they break

Thanks (0)