The Saturday Economist 2nd March – growth in 2012 is 0.2% but watch out for the sequester

The Saturday Economist 2nd March

Economics news – Growth in 2012 is 0.2% but watch out for the sequester!

Start the year on a positive note and get it over with has been our opening gambit at presentations so far this year. It is now day 61 into the New Year and we are still in positive territory. No need to worry about the US fiscal cliff or the Chinese choke but watch out for the Sequester.

Not some new block buster film release, but the employment of automatic, across-the-board spending cuts in the USA. The sequester removes $85bn from the federal budget over the next seven months and $1.2tn over the next 10 years, predominantly ($500bn) in defense cuts.

A modest attempt to cut the $16 trillion debt overhang over the decade perhaps. Republicans won’t increase taxes and democrats won’t cut spending, the result an impasse which will not fundamentally derail growth or cripple US war ships. Cleaning contracts in the Pentagon may well suffer significant cuts. House Speaker John Boehner, has said, the cuts represent a “serious threat to national security and must be replaced.” Don’t panic just yet.

Italian Elections
The Economist headlines this week, with “Send in the clowns” – suggesting Beppe Grillo and Silvio Berlusconi may threaten the future of Italy and the euro. As if. The disastrous election results have produced the latest in a series of seventy odd administrations in Italy since the war. We have had time to adapt to disastrous election results.

UK GDP : The ONS produced the second estimate of Q4 GDP this week. No real surprises, construction was slightly better for the year overall but growth in 2012 was up by 0.2%. The economy experienced growth last year after all. No fears of a triple dip on the horizon!

CIPS Markit UK Manufacturing PMI
No fears until the CIPS Markit survey for February was released yesterday. Return to contraction of UK manufacturing sector in February, the headline as the index slipped to 47.9 from 50 in January. Concerning? A little but we don’t expect any sector growth this year in any case.

What’s happened to Sterling
By the end of the week Sterling closed at 1.1543 up from 1.1462 against the Euro. The Sterling Dollar rate closed at 1.5035 from 1.51 and the Dollar closed down against the Euro at 1.3025 from 1.32. The warnings of the death of a currency much exaggerated.

Oil Price Brent Crude closed at $110.4 from $114.10. No threat to inflation, as fears for growth in Europe pushed prices lower.

Markets, were up again this week. The Dow closed at 14,089 from 13,974 and the FTSE closed at 6,379 from 6,334. UK Ten year gilt yields slipped to 1.89 from 2.11 and US gilts closed at 1.89 from 1.96. Dealers are buying everything but the Dollar this week.

The “Budget for Greater Manchester” statement on the 14th March looms. Just drafted the open letter to Mark Carney this morning, to be released by Weber Shandwick next week! Don’t miss that!

That’s all for this week, don’t miss The Sunday Times and Croissants out tomorrow. 
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