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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

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How much more economic change will we see?

As the serious recession of the past five years starts to abate we can consider now some of the changes that have occurred and are occurring.

Eurozone: The lead up the German election in September was preceded by a nicely judged political hiatus to keep Greece and the Euro low on the agenda of the German election. The redoubtable Merkel being duly re-elected is now talking about Greece again but the truth is that its position continues to deteriorate. Italy remains a serious cause for concern with political instability and too many mature industries that look less competitive today. Spain and Ireland continue to recover slowly but Portugal remains a threat to recovery and deficit reversal. I would still engineer an exit for Greece and Portugal but the political will outweighs the logic. Growth remains sluggish and peripheral nations will ensure that growth stays sluggish.

The biggest alarm bell was sounded when the ECB cut its rate on November 7th from 0.5% to 0.25%. Only a .25% cut but also halved! There is an underlying concern in the EZ about deflation, debt, bank liquidity, growth and the periphery that is driving such measures. The over valuation of the currency is also a concern.

Banks: The ECB is examining the liquidity of EU banks now and the less than promising reaction to this news has been a minor flight from EU bank shares. The UK has a dynamic, modernizing new governor with Mark Carney and the omens for his tenure are very good.  The Fed will likely get a new leader in Janet Yellon who should be safe hands.  Meanwhile US banks are being demanded to further improve liquidity and solvency with tough measures that will greatly increase confidence in the US financial services sector.

International Trade: A unique paradox has appeared in this area with a minor decline in the growth rate of world trade volume. It has grown 2.5% in 2013 compared to over 5% in 2012. The relative growth in services may be part of this but the decline in consumption of ‘physical’s’ is less easy to explain.

Emerging markets: China manages its growth position well but Brazil has slowed due to lack of structural reforms. India has suffered from its currency devaluation and South Africa is suffering productivity threats from poor labour relations. The BRICS are far from unstoppable. However, Turkey remains very strong and the health of Poland and Chile are also notable. Emerging markets are made up of far more than the BRICS and this should be noted by all analysts; e.g. Indonesia is a rising star.

UK:  Growth in the UK has picked up and may even exceed 2% in 2013. Trade looks a lot healthier too so there is reason to cheer but the government is rightly not cheering too much. The UK has a long way to go to cut its deficit and the structural fundamentals are still way out of balance. Productivity is low and exports too low to impact the current account as much as is needed. Wage growth is not keeping up with inflation and the wider economy will need a long time to fully re-balance.

So what of 2014?  Most areas will improve, on balance the recovery will continue but no one should relax for some time to come and the Eurozone has plenty of capacity to spring a surprise.


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