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The Release of Government's EU Exit Analysis

The EU free trade agreements still expected to cost the UK by 4.8 percent of its projected economic growth for the next 15 years, based on the confidential government ‘EU exit analysis’ released yesterday. The decline in growth amounted to £55 billion of the British government debt by 2033, which could further negate the expected ‘Brexit dividend’ by the supporters of the EU exit. The report was issued by the department of Exiting the EU committee. Moreover, Brexit Secretary David Davis stated that the published document should be kept confidential but some parts of the material were already leaked to the media last month.

The alternative option led by Theresa May’s team is the “Membership of the single market” but was ruled out due to the possible drop in GDP by 1.6 percent. On one hand, the ‘no deal’ Brexit would return the UK trading with the EU-27 under the standards of the World Trade Organisation and would cost 7.7 percent of the GDP based on the government numbers. This could result in a surge of government borrowing by £20 billion and £80 billion, respectively. With this, there are assumptions that approximately 40,000 to 90,000 EU migrants are planning to leave the United Kingdom.

Included in the analysis is the projected economic benefits from the reducing regulations. The government of Britain would likely create its original version of impact assessment, however, some of the think tanks are expected to see potential gains around zero and 2 percent only of the GDP. Nevertheless, the report does not mainly evaluate the short-term economic effect of Brexit.

It further shows that the free trade deal with the United States would benefit the UK GDP by 0.2 percent in the longer term. While another concession with countries under the trans-Pacific and south-east Asia regional group such as Australia, China, India and New Zealand is expected to add 0.1 to 0.4 percent of GDP. Ministers of Britain are hoping to start the talks prior to the Brexit scheduled in March 2019, but this plan seems to be already abandoned.



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UK Economy Lag Behind Other G20 Countries

According to the Organisation for Economic Co-operation and Development (OECD), the British economy is expected to grow at a gradual pace compared with other major advanced or emerging countries. Prior the publication of the Spring Statement, the Paris-based organization revised upwards its economic outlook for Britain by 1.3% this year along with the strong global recovery. The forecast is higher than the initial estimate of 1.2% but remains to be the weakest in the Group of Twenty (G-20).

The OECD projected that the most rapid growth from 2011 was led by US tax reductions and German expenditure. The think tank stated that the world economy stayed on course to boost its annual momentum to 3.9% in the next couple of years. The figure is relatively higher than the recent forecast in November 2018 of 3.7% and 3.6% in 2019. However, there are warnings that the recovery risk may subside due to the expansion of trade barriers and could further affect the growth and jobs. The OECD mentioned that increased in UK inflation would continue to squeeze the household income. Also, the sluggish business investment could affect growth for the following years until 2020 due to risks caused by the Brexit talks.

The forecast for UK economic growth in 2019 was left unchanged at 1.1%, which recorded to be the slowest progress next to Japan. Economists predicted that the British economy will grow by 1.5% on an annual basis, while Chancellor Philip Hammond is expected to issue an optimistic outlook of the revised official forecasts on Tuesday.

Overall, the latest projection of the OECD showed that the entire G20 countries, except for Russia, will expand at a faster pace for the current year versus the November forecast.


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British Chambers of Commerce Upgrade UK Economic Outlook

The British Chambers of Commerce (BCC) lifted its forecast for the UK economic growth, however, showed warning that UK will be the worst performing economy among other G7 countries in 2020. The GDP outlook of the BCC is 1.1 to 1.4 percent for this year and 1.3 to 1.5 percent in 2019.While, the initial growth forecast is 1.6 percent for 2020, as the revision was steered by the slightly stronger than anticipated consumer expenditure. Moreover, exports from Britain is predicted to remain stable amid robust global growth. On the other hand, imports could possibly resume its expansion and the net trade contribution to the country’s GDP in the short term appears to be limited, as the pound support Britain’s overall net trade position. In spite of the increases, the UK GDP is expected to remain below the historical average during the forecasting period.

The non-profit organization stated that productivity is projected to have slight improvement compared over its estimated outcome but continued to be weak restrained by the underlying issues within the country, such as skills shortages and failure in infrastructure investment. The BCC expects that inflation will pick up and start to ease in the near term since the impact of the post-Brexit toned down upon the weakening the Sterling. Furthermore, there are assumptions that the next hike in UK official interest rates will reach 0.7 percent in the second quarter of 2018, which could be followed by another rise in Q1 next year. The business body foresees that public sector borrowing in Britain will come in over £13.4bn for the next three years compared with the projection issued at the Spring Statement by the Office for Budget Responsibility last week.


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March Fed Rate Hike Marks an Optimistic Outlook for 2018
Full story at: https://goo.gl/b2M3WW
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US Factory Growth Hit Lower in March

The factory activity in the United States had slowed down for the month of March alongside the downturn in new orders. While growth in manufacturing industry continued to be supported by strong global and domestic economies. Further data showed on Monday the marginal increase in construction expenditure for February. The figures coincided with the economists’ forecast that the economic growth will slacken in January to March. Economic growth in the first quarter of 2018 appears to be weak due to seasonal quirk.

According to the Institute for Supply Management (ISM), the national factory activity index declined to 59.3 in the previous month versus 60.8 in February. If the reading in the ISM index is above 50, it indicates expansion in manufacturing which accounts more or less than 12 percent of the American economy. While the survey's production sub-index drop to 1.0 point from the reading of 61.0 last month. The estimate of new orders fell to 61.9 in March against 64.2 in February. The gauge of factory labor reduced by 2.4 points to 57.3 in the previous month.

There are 17 sectors that reported growth in March, which involves computer and electronic products, fabricated metal products and machinery and chemical products. On the other hand, the Apparel, leather and allied items showed a downswing. Machinery manufacturers told that imposed tariffs on steel and aluminum imports led to panic buying, pushing short-term costs higher, and further caused scarcity for non-contractual clients. The tariffs set by US President Donald Trump is intended to protect domestic industries from the so-called unfair competition against other countries.

The report slightly influenced US financial markets. As shown in a separate report, construction spending gained 0.1 percent in February following a steady stance in January. The Reuters poll indicates that economist projected that construction spending grew by 0.5 percent in February and expected to increase by 3.0 percent on an annual basis. February’s marginal increase in construction spending presents a growth estimate for the GDP in Q1, which is predicted to be lower than the 2 percent annualized rate.

The costs on private construction projects were up by 0.7 percent on the back of its 0.7 percent decline in January. While nonresidential structures expenditures had rebounded by 1.5 percent in February after it plummeted to 1.7 percent in the past month.


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Italy’s Industrial Output Unexpectedly Decline in February

The industrial output of Italy suddenly weakened in February which further showed signs that growth in the Euro area may exceed its peak. The production declined by 0.5 percent since January after it dropped to 1.8 percent, according to the Istat in Rome yesterday. While economists predicted an expansion of 0.8 percent in February based on the median of 24 forecasts in the poll by Bloomberg. In the previous year, the working-day adjustment industrial output increase by 2.5 percent.

The manufacturing of consumer goods fell to 2.4 percent in February which had a major contribution to the monthly tightening. The manufacturing index of the country showed a lower than expected results in March after the failure in general elections to have a clear winner. This triggered concerns for the possible lengthy process prior to forming a new government.

Italy is the third largest economy in the European region and grew in 2017 at its fastest pace from 2010 since weaker consumption was outweighed due to increasing investments and exports. However, the national output hovered below its pre-crisis level where most of the major EU economies were able to recover from its sluggishness.

The German industrial production softens in February because construction shrank as well as the investment goods. The major downturn was 1.6 percent recorded in August 2015. While the research firm Sentix had a pessimistic outlook towards the Italian economy as indicated in their monthly report since July 2016.


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China’s Economic Growth Slacken in Jan-Mar Period

Chinese economy slowed down gradually in Q1 due to government struggle over credit and financial hazards, while U.S. trade frictions are showing signs of restricted growth based on AFP survey. China is projected to expand by 6.7 percent during the first quarter but remains to be lower than 6.8 percent in the last quarter of 2017 according to 13 economists prior the publication of official numbers. Analysts see that the decline was linked to the country’s massive pile of debt, financial risks, and slackening property market.

The trade war issues with the United States brought a negative impact towards the markets in the past few weeks, as Beijing and Washington appears to have equal retaliations with regards the bilateral trade. However, the fears triggered by US President Donald Trump to have an additional $100 billion in Chinese imports would cause solid damage to the economy, experts said.

The trade data was issued by Beijing on April 13 which supported the news that trade surplus in China with the US increased for the fifth time after the first quarter of the current year. There are indications that growth will reach higher than 6.7 percent based on AFP poll, with numbers greater than the official target of the government at 6.5 percent for this year.

On Thursday, Yi Gang, People's Bank of China (PBOC) Governor, stated that China is scheduled to issue its economic quarterly data exceeding its expectations, which further shows an optimistic outlook in 2018.

President Xi Jinping had a propitiatory note on trade last week and pledged to reduced tariffs on cars and other goods which triggered anger of the United States. Also, to open up the economy which had a warm response from Trump. However, the commerce ministry of second largest economy in the world restated that there are no ongoing talks between the two capital cities due to insincerity showed by Washington.


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