The brief before Christmas - Economics weekly

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The brief before Christmas - Economics weekly

Tis the brief before Christmas and in the UK, house price inflation risks running away.

Economic Analysis

16 December 2013


The US consumer is spending like stink and while Germany grew, France continued to shrink. China looks stable, while others look weaker, as tapering talk makes their prospects look bleaker. And hoping to give my readers a lift, there’s economic advice on that great Christmas gift. 2013 had lots of statistical cheer. Merry Christmas to all and a happy New Year!

UK house prices in festive spirits

“There is a history of things shifting in the UK, and of the housing market moving from stall speed to warp speed," said Bank of England (BoE) Governor Carney last week. News from RICS, the surveyors' trade body, won't have lifted his mood. Demand for houses is motoring but estate agents' windows are like a toy store’s at closing time on Christmas Eve: pretty bare. That is pushing prices up faster, with the Halifax recently reporting rises across the UK of 8% y/y. Much more of this and the BoE will want to let the air out of any bubble before it gets too big and bursts.

Manufacturing rebounded while the trade deficit persisted

Manufacturing output rose 2.6%y/y in October, the fastest increase in two and a half years. Growth was again underpinned by rising vehicle production. Production has a long way to go to get back to pre-crisis levels, but if this rebound continues it will help lay a stronger foundation for the economic recovery. The UK's trade deficit was -£2.6bn in October, the same as September. This was not helped by goods exports drifting lower over the past few months, despite the best efforts to boost them. If the recovery continues to be consumer driven, the prospect of growing imports could mean that the stubbornly high trade deficit remains exactly that.

Tis the season in the US

Americans opened their pocketbooks wide at the start of the holiday spending season. Retail sales were up a healthy 4.7% y/y in November. Growth for October was revised up from 0.4% m/m to 0.6% m/m. The US consumer's heart barely missed a beat during the Government shutdown and other fiscal shenanigans over the autumn. Numbers like these mean firms are able to sell the stocks they built up in Q3 and that growth in Q4 should be decent.

Solid Chinese data

Chinese exports rose 12.7%y/y in November, driven by a recovery in global demand. Exports to the UK have grown by around 20%y/y on average over the past four months, outstripping shipments to the US, EU, Latin America and even the rest of South East Asia. Meanwhile, industrial production rose 10%y/y in November and investment grew by around 20%y/y. On top of this, retail sales grew just short of 14%y/y, the best showing in almost a year. Economic growth looks stable for now, but will that remain the case as the authorities try to slow credit growth?

What about the rest of the emerging world?

Many of the other major emerging markets are going through a difficult period. India's economy grew 4.8%y/y in Q3 - it was growing at twice that pace just three years ago. Growth in Turkey more than halved in two years to 4.4%y/y in Q3. Indonesia's growth slowed throughout 2013. These three countries share something in common. Each was hit by the US central bank's talk of reducing the scale of its Quantitative Easing programme ('tapering'). Less QE in the US means less money making its way to emerging markets. It is bound to come sooner or later. Here are the emerging markets we think are most exposed (PDF 167KB).

Some up, some down in Europe

Eurozone PMIs rose to 52.1 in December. The improvement was led by the manufacturing sector, which posted the strongest rate of expansion in over two and half years. Unfortunately the service sector did not join the end-of-the-year celebrations as the rate of growth eased for the third consecutive month. Most countries will be drinking a toast. German businesses will crack open a few bottles of beer as their output increased again. And Italian and Spanish firms will enjoy a few sips of spumante and cava on improved growth. But the champagne will be left to chill – private sector activity in France continued to decline adding worries of a return to technical recession in Q4.

The secret of a successful Christmas gift is deceptively simple

A 1993 paper by economist Joel Waldfogel calculated the difference between the cost of a gift and the value it was worth to the recipient. The most generous estimate suggested the recipient would have paid just £9 for a gift costing £10. That seems a lot of wasted money, about £1.6bn this year, based on a YouGov poll suggesting we'll be spending about £16bn on presents. We give because we care but it's hard to know others' wants. The secret to a successful gift is finding out what the person wants, but feels guilty buying for themselves. Receiving gifts removes the guilt-factor. Easy in theory. Happy Christmas, we’ll be back in 2014.


This material is published by The Royal Bank of Scotland plc (“RBS”), for information purposes only and should not be regarded as providing any specific advice. Recipients should make their own independent evaluation of this information and no action should be taken, solely relying on it. This material should not be reproduced or disclosed without our consent. It is not intended for distribution in any jurisdiction in which this would be prohibited. Whilst this information is believed to be reliable, it has not been independently verified by RBS and RBS makes no representation or warranty (express or implied) of any kind, as regards the accuracy or completeness of this information, nor does it accept any responsibility or liability for any loss or damage arising in any way from any use made of or reliance placed on, this information. Unless otherwise stated, any views, forecasts, or estimates are solely those of the RBS Group’s Group Economics Department, as of this date and are subject to change without notice. The classification of this document is PUBLIC. © Copyright 2013 The Royal Bank of Scotland plc. All rights reserved.


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