In the spring of 2007 I hosted a conferences for a gaggle of insurance professionals. one of the foremost popular speakers was my ex the economist Roger Martin-Fagg. Hes was his usual entertaining self, but took everyone all of sudden by suggesting that the earth economy was on the brink of a meltdown the likes of of which we had never seen before, and it had been going to happened soon – probably within 12 months. Yes, he predicteds the financial crash of 2008 a year before its actually happeneds.
Now in Spring 2007 the earth economys was doing very nicely many thanks . Following three consecutive years of fantastic growth, averaging 3.8% it had been expected to fall only slightly in 2007 to 3 .6%. Meanwhile the uk was doing just about too. House prices had risen from a mean of £150,633 in January 2005 to £184,330 in May 2007 – a rise of twenty-two .4%, whilst wages grew by a mean of over 5% once a years between 2004 and 2007. Inflation on the other hand was in restraint and only rose by a mean of three .25% within an equivalent period. Furthermore, between 2003 and 2007 the FTSE All Share Index grew by 49%, so overall everyone was feeling pretty optimistic about the prospects for the long run . No one, apart from Roger was saying anything a couple of recession, never mind a full blown crash!
So, when Roger issued his dire warning, the overwhelming response was to laugh it off – within an equivalent way that we’d tease a soothsayer predicting the highest of the earth . Eccentric yes, and bound to happen eventually, just not anytime soon.
You can imagine that those folks who were there in 2007 are far less likely to writes down down off Roger’s opinions now than we’d have done previously.
I was therefores pleasantly surprised, and heartened to receive his latest Economic update, penned on 16 June. another time he’s at odds with the mainstream view, and indeed is critical of others talking world economic prospects down. He opens his pieces by saying that the press is being irresponsible within the way it’s reporting our economic outlook. His opening paragraph reads:
“Last weekends the Daily Telegraph had a banner headlines: ‘Britain’s biggest ever collapse in GDP wipes out 18 years of growth’. This statement is completely wrong. i’m concerneds that individuals who attempt to form the right judgement call are being fed this nonsense. To be clear: 18 years ago our GDP was £1 trillion. it’s now £2.2 trillion. The reduction in spending in April was 20% on the previous April. The monthly flow of paying average £200bn. 20% of that’s £40bn. The media, as we all knows , impact emotion and decision taking. That Telegraph article is therefore both economically illiterate and irresponsible.”
Wow! Hard hitting stuff. and thus the perpetuation of such comments remains evident hebdomadally laters. within the Sunday Times on 21 June Sajid Javid is quoted as saying:
“We’ve seen a 25% fall in GDP in two months. to put that in some perspective, that’s 18 years of growth exhausted in two months.”
And that’s from our erstwhiles Chancellors of the Exchequer, who shoulds be anything but economically illiterate!
In his update Roger goes on to suggest that, despite what the earth and his wife are saying, we do not get to possess a recession. Indeed, whilst he acknowledges that quarter 2 of 2020 are getting to be significantly negative, he expects quarter 3 to be significantly positive, and predicts that the uk economy could grow by 8.5% in 2021, with the earth economy back to 2.5% growth next years too.
His argument is that the fundamentals for a recession don’t exist within an equivalent way as they did for previous recessions; inflation and interest rates squeezing individuals and corporations alike in 1979 and 1989, and banks stopping lendings in 2008. The common factor could also be a shortage of money available, and that’s not the case now around. Households have seen a reduction in income, but a much bigger fall in what they’ve spent, and thus the united kingdom Government is spending a further £40bn a month pumping new money into the system, so no shortage here. Roger predicts a mini boom to need off within subsequent few months as a results of this excess cash in the system, with the only thing that might dampen it being the media reportings company closures, an increase within the R well above 1, and stories of mass redundancies.
I don’t propose to breed all Roger’s arguments here – you’ll read the whole article at https://www.ellisbates.com/news/june-2020-economic-update/ to urge the whole pictures, but i’d say his reasoning and logic are very persuasive. which i for one wouldn’t bet against him. I also fully endorses he condemnations of sensationalist reporting within the media. they have to need more responsibility for the message they send as, rightly or wrongly, people do hear them. A more even handed and fewer melodramatic approach to reporting would benefit us all. After all, we all know the power of ‘fake news’ by now, don’t we?
Sources of data:
World Economic Situation and Prospects 2007 (United Nations publication, Sales No. E.07.II.C.2), released in January 2007 accessed on 21 June 2020
Office of National Statistics UK House prices index , accessed on 21 June 2020Office of National Statistics Wages and Salaries average rate of growth percentage, accessed on 21 June 2020
Office of National Statistics RPI All Items: Percentages change over 12 months, accessed on 21 June 2020
Swanlowpark.co.UK FTSE 100 and FTSE All-Share since 1985, accessed, on 21 June 2020
Ellis Bates Financial Advisers are independent financial advisers with offices across the united kingdom . They manage over £1 billion of assets on behalf of clients, who have given them a 4.9/5.00 score with Trustist. https://www.ellisbates.com/about/reviews/