What they say

Stephen Archer is a speaker with great charisma. By using illustrations and personal experiences and not being afraid to share his own point of view of the current situation and who is to blame for it, he engages the whole audience, at the same time helping us all to understand the credit crunch a little better.

— Warwick Business School


Economic Confidence – Greece and Oil

Two things lubricate an economy: liquidity and confidence. Without one or the other, an economy struggles. I wrote about this five months ago and now we have a new global, US and UK dynamic at play when it comes to confidence in the economy. Greece and oil, but I will come to this.

Growth in the US and UK economies continues to be sluggish and the work out of private (never mind public) debt has yet to fully take effect. In tandem, currencies are not strong, unemployment continues at a high level and inflation is starting to look a little menacing. Certainly the Bank of England’s Governor expressing fears that inflation may be 5% by the autumn is alarming and I feel alarmist. We may even have stagflation. In truth, both the USA and UK are in the long haul of recovery. This cannot be a rapid climb out as we have seen in earlier recessions. The damage to liquidity and the steep rise in debt will ensure that the full recovery will take at least another 3-4 years. With regard to the US debt, it will be longer still.

Many of the economic issues are so complex and huge that most of the electorate will not have a firm grasp of the implications – but they have a firm grasp that things are not as they should be. What else has dented confidence this year so far? : Japan’s Tsunami; question marks over future sources of energy thanks to the reactor failure; Bin Laden’s demise (yes, also a positive piece of news but reprisals now a new worry) Libya; BP’s continued attempts to take foreign stakes; higher taxes.

On the plus side we have had a Royal Wedding which for a week gave the UK a great retail and service industry boost. With the Royal Wedding we had living proof that confidence or at least a ‘feel good’ attitude can over ride everything. Of course its short lived but it is a fascinating case study.

One other factor on the minus account. Greek debt and the Eurozone now somewhat compounded by the Strauss-Kahn debacle. This is hanging over markets and the Euro economies in a most ominous manner which brings me to the Greece and Oil connection. Fears of the debt re-structure damage to the Eurozone and its growth is leading to futures on oil being downgraded. Such is market’s low confidence in the ability of Europe (and the IMF) to come to a balanced and damage limiting solution for Greece and other Eurozone economies.

On the plus side – there will be a solution for Greece but the nature of that solution is going to be quite different to today’s bandage and this will re-kindle confidence. In my travels, by the end of the summer I expect to see business men in large and small enterprises whether they are healthy or not – all feeling more confident.

But then again, as Harold MacMillan once said: “Events dear boy, events…..” !

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