UFO Info Week-End

These are significant numbers and are much higher than the rather complacent estimate

These are significant numbers, and are much higher than the rather complacent estimate of 0.2-0.3 per cent of GDP published last week by the OECD. The key question now is whether the Asians will suck the rest of the world into recession with them.
A previous column in this series argued that the emerging market and Japanese domestic shocks might reduce GDP in the developed economies by about 0.6 per cent next year, and might reduce global GDP by about twice that amount. Freddie Couples, a laid-back genius of an American golfer, recently played an important tournament in Japan. Leaving the 18th green, he was asked by a local reporter whether he enjoyed playing golf in Asia “Asia?” said a puzzled Freddie. “I have never been there.”

Sadly for the Japanese, Freddie’s view of their geographical location is not shared by more more orthodox scholars. Quite clearly, the chronic long-term problems of the Japanese economy are being made much worse by its close proximity to the Asian meltdown. The survey found that significantly more companies expected to increase rather than decrease the value of their exports over the coming 12 months..

Otherwise it will miss its inflation target.” Interest rates would climb to 8 per cent in the summer from their current level of 7.25 per cent, he predicted, with the next increase occurring as early as January or February 1998.The 3i survey lends some support to the argument that growth will not slow that sharply. Economist Michael Dicks said the Bank’s outlook implied that the economy would slow from growing at a pace double its long-run potential to well under half its potential in the space of six months.He predicts a much gentler slowdown, implying that for the next one or two quarters the economy will grow at a pace far faster than the Bank has assumed.Mr Dicks said: “Unless growth does slow abruptly next year, the Bank will have to tighten the monetary stance, perhaps appreciably. This forecast – published for the first time in the latest Inflation Report – allowed the Bank to predict a favourable outlook of inflation staying on target for the next two years.However, a report published today by the investment bank Lehman Brothers says the Bank of England forecast is implausible. which noted that there had been little reduction in the volume of British exports since August 1996 despite sterling’s appreciation of around 20 per cent.”
Brian Larcombe, chief executive of 3i, said: “It is encouraging to see these businesses resilient in the face of a strong pound, though it is difficult to say at this stage whether we have yet seen the full impact of stronger sterling.”The judgment that the strong currency would now start to bite lay behind the Bank’s prediction of a sharp slowdown in growth in the early part of next year. Small and medium sized companies do not think the strong pound will harm their export prospects, a new survey indicates.

It coincides with a prediction that the Bank of England will have to raise interest rates more than its recent Inflation Report hinted because it is wrong to assume exports and growth will slow quickly. The survey, by investment group 3i, found that small and medium sized companies are confident about their export prospects. According to 3i: “This picture is consistent with the Bank of England’s Inflation Report … The proposals will ensure that “all staff will get some sort of pay rise”, according to Bifu, the banking union.. Employees are to be balloted on the remuneration package, which includes more holidays and a performance- related pay system, but trade unions have recommended that staff accept the proposals The ballot result is due on 23 December.