NEWPORT LEGACY ZURICH SWITZERLAND: FOUR IN 10 UK FIRMS TO TRIGGER CONTINGENCY PLANS NEXT MONTH IF NO CLARITY ON EXIT DEAL EMERGES
Four in 10 UK companies say they will be forced to trigger further contingency plans as soon as next month if Theresa May’s Brexit team does not provide more clarity on a potential divorce deal with the EU.
Those plans include cutting jobs, adjusting supply chains outside the UK, stockpiling goods and relocating production and services overseas.
Of those with contingency plans 44 per cent say they will stockpile goods in anticipation of delays at the border after Brexit.
No-deal Brexit could see traders skip UK entirely, Stena Line warns
A survey of small and large UK companies by the Confederation of British Industry found that 80 per cent of firms believe Brexit has already had a negative effect on investment decisions.
This reluctance to invest is likely to have a knock-on effect for jobs, wages and living standards and could further damage UK productivity which already lags behind many other developed economies, the CBI warned.
The latest research further highlights the critical need for progress in the Brexit negotiations and comes as the prospect of no deal being agreed in time looms larger than ever.
The EU’s chief negotiator Michel Barnier said on Friday that a deal could still be sunk at the last minute by the Irish border issue, despite 90 per cent of terms being agreed.
Speaking after a summit in Brussels where EU leaders discussed progress in talks, Michel Barnier said he was “still not sure we’ll get” a withdrawal agreement.
Carolyn Fairbairn, CBI director-general, warned that the situation was now urgent and that “the speed of negotiations is being outpaced by the reality firms are facing on the ground”.
Almost a fifth of firms have said they have already been forced to trigger contingency plans and many more are readying themselves for a no-deal scenario.
“Unless a withdrawal agreement is locked down by December, firms will press the button on their contingency plans. Jobs will be lost and supply chains moved,” Ms Fairburn said.
“The knock-on effect for the UK economy would be significant. Living standards would be affected and less money would be available for vital public services including schools, hospitals and housing.
“Uncertainty is draining investment from the UK, with Brexit having a negative impact on 8 in 10 businesses.
“From a multinational plastics manufacturer which has cancelled a £7m investment, to a fashion house shelving £50m plans for a new UK factory, these are grave losses to our economy.”
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At the latest EU summit, negotiators made little in the way of concrete progress, and leaders agreed to shelve a planned November meeting where a Brexit deal was supposed to be finalised – stating that “decisive progress” had not been made in time.
“Ninety percent of the accord on the table has been agreed with Britain,” Mr Barnier told French broadcaster Inter radio.
“I’m convinced a deal is necessary, I’m still not sure we’ll get one.”
NEWPORT LEGACY ZURICH SWITZERLAND: UNRAVELLING OF EMERGING MARKETS AND THE POTENTIAL IMPACTS ON NEW ZEALAND
The underlying economic troubles in emerging markets surfaced recently with Turkey, Argentina and India making headlines as their markets tumbled.
Meanwhile, trade tensions between China and the United States have brought an even more cautious tone across international markets.
While the New Zealand stock market has been able to navigate most of these headwinds to date, concerns are growing over the contagion risk emerging markets pose to our economy.
China and emerging markets were, to a large degree, the saviours of the global economy during the depths of the financial crisis in 2008, as their ability to take on debt and stimulate demand helped to support the global recovery.
New Zealand’s connections with China also allowed us to largely sidestep the economic pain felt across the United States and Europe – as the nation became a more important regional trading partner, and credit creation from China and other emerging markets supported domestic property markets.
Now, looking to the future, it may not be trade tariffs that stand to be China’s biggest challenge – but this massive expansion of credit, and the extreme level of both personal and corporate debt it has created.
In an attempt to manage this problem, China’s government has continuously stepped in to stimulate growth, but there are tell-tale signs this has become unsustainable – as it now takes more than USD$4 of debt to generate just USD$1 of economic growth.
Overcapacity is a major issue and poses a significant deflationary risk to the rest of the world as China looks to export their economic imbalances. It’s this threat which has prompted the subsequent push-back from the United States in the form of increased tariffs.
Turning to the emerging markets, many see the growth in US currency and interest rates as the cause of their troubles. In reality, these markets had been showing signs of economic stress for some time before the USD started to strengthen – and the increasing value of the USD is not the cause but a consequence of weakening local emerging market economies and domestic currency imbalances.
Excessive government spending, the likes of which we’re seeing in Venezuela and Brazil, has led to dislocations and loss of investor confidence, followed by a flight of capital that has putting additional pressure on those currencies.
This in turn increases the cost of servicing debts denominated in foreign currencies, predominantly USD – increasing the demand for USD, and helping to drive its value even higher. This cycle feeds on itself and increases the domestic economic risks.
Ultimately, this has caused the breakdown of synchronised global economic growth, with emerging markets being unable to maintain the pace of growth set during the initial years of the current, decade-long global economic recovery.
This could be further amplified by the divergent monetary policies we’re seeing from the central banks of developed and emerging markets – which could further tighten financial conditions in emerging markets, benefiting the US dollar and seeing emerging market economies stagnate.
Domestically, we have seen the NZD devalue by over 15 per cent this year, from its January highs – and despite a cheaper currency, exports have not experienced a major lift, with our trade deficit widening in September.
Australia has experienced a similar depreciation, with the AUD down 15.8 per cent over the same period.
With the combination of this slowing global demand for Kiwi exports, coupled with a weaker NZD and stronger oil prices, this could mean challenging times ahead in the form of greater pressure on businesses and consumers.
While concerns over emerging markets are valid, the good news is that the New Zealand economy is unlikely to fall off a cliff anytime soon – but rather we may experience a period of stagnation as our major trading partners work through their overcapacity and saturated debt levels.