I think we may have been starting to get used to hearing repeated positive storied about the health of the British economic recovery. For at least 18 months we’ve had various reports from various bodies which have told us that the UK economy is back on the right road and we can start to relax a little. However, bubbling on in the background of the wider world economy has been wider issues that are now starting to spill over. These could now be starting to have an effect.
“oil trading at lowest point in 4 years”
At the time of writing this post oil was trading at a tad over $85 per barrel. It has been steadily dropping since the summer on the fears of a slowdown in demand. Demand always drops because economies aren’t performing as they would like. And this is exactly the scenario. Europe is sliding back into recession. Germany, the Eurozone’s biggest economy, has just revised down their annual GDP forecast to 1.2% growth down from 1.8%. Italy is back in recession proper. At current rates, the Eurozone will be back in recession as a whole too.
Why is this a problem? Well the UK exports a ton of what it produces to the Eurozone. If demand for products and consumer confidence falls, Europe buys less of what we produce. Simple as that. We might find our levels of exports to the Eurozone drop over the next few months. It’s not all bad though. We’re looking way outside Europe to other emerging markets to sell our wares and by all accounts those levels of exports are actually rising.
Shares on the slide
I’m a business nerd, and I know a few of you lot are too. Therefore you will have seen the various stock markets around the world drop quite considerably over the last few weeks. It has been bugging me at the back of my mind, that stocks should be so high. Before the UK was officially declared out of the wood, shares were already on a sharp incline. It didn’t make sense. Everything else going on suggested the markets needed to be more depressed than what they were. It couldn’t last.
And now we are starting to see what I think could be quite a big correction in the markets. As fears grow about the globe’s economic recovery, the sell off has begun.
Ebola and the Middle East
Whether you like to believe this or not, the expanding IS crisis and the growing threat of Ebola is also going to have an impact. The Middle East is slowly dragging in other countries into the fight against the violent jihadists. Some think it will escalate further and drag other parts of the world in too. This will have an effect on the world economy. But perhaps more pressing than that is the escalating Ebola crisis.
Right now the disease is ravaging West Africa. Sierra Leone, Liberia and Guinea are being crippled by the virus with deaths now at the 4500 mark. It looks like the disease is spreading, with Africa still at most risk. But we are now seeing the odd cases in Europe and America. The World Health Organisation has said on Tuesday that by December we could be seeing around 10,000 new cases per week, and the virus ruining whole countries and economies. Now the chances of Ebola spreading in Western countries as it has in Africa is low. The health systems in place are far more effective than they are in West Africa.
But ironically, it’s not the virus itself that will cause the potential economic damage in Western countries. It’s the fear of the virus that will do the most damage. If, and this is a big if bear in mind, we start to see regular cases of the virus which has a mortality rate of 70%, in the UK, fear and panic could heavily disrupt the daily lives of many of us. It is fear that will stop people from engaging with others. Human interaction will drop and that would have serious impacts on everything we do.
That is of course a worst case scenario, but it is a possible one. The world really needs to step up efforts to stamp this risk out as soon as possible.
It’s not all bad!
However, despite these growing problems, the UK continues to perform well in what is becoming a very challenging environment. It is in fact one of the strongest performing economies in the world right now. We won’t be completely sheltered away from external shocks to the system, but providing we keep our heads, take a considered approach to any bumps in the road, we should be able to ride those out smoothly.