Friday, 28 October 2016

Brexit Doomsayers Defied as Economy Expands and Nissan Invests

In World Economy News 28/10/2016

The pessimists will have to wait.
The U.K. economy performed better than anyone expected since the vote to leave the European Union and, as a bonus, Nissan affirmed its commitment to the U.K. with a decision to build two new car models at its plant in Sunderland.
Both give those who championed a split fresh reason to cheer and helped to counter the pre-referendum warnings from the Treasury and most economists that choosing Brexit would cast the economy into recession and repel foreign investment. The question now for the economy, and those charged with leading it through the messy divorce from the EU, is whether that resilience endures or soon crumbles.
“This is a really long, drawn-out process and we’ve just seen the early start of it,” former Bank of England policy maker Danny Blanchflower said in a Bloomberg Television interview. “The suspicion is there’ll be more slowing to come — we’re in a fairly benign world with perhaps a tsunami coming.”
As the Office for National Statistics announced that growth was 0.5 percent in the third quarter — above the 0.3 percent forecast — it said there was “little evidence of a pronounced effect” from the referendum. That pushed gilt yields to the highest since the vote. GDP rose 2.3 percent compared with a year earlier.
Nissan Boost
Then came the news that 7,000 autoworkers in Sunderland had been awaiting as Nissan, the U.K.’s biggest carmaker, said it will increase investment in its north east England plant and secure jobs by churning out the next generation versions of some of its best-selling cars. Around the same time, the Confederation of British Industry pronounced that consumer spending remains healthy, with its retail index rising to the highest in more than a year.

The car maker linked its decision to “support and assurances” from the government, days after Chief Executive Carlos Ghosn met with Prime Minister Theresa May having called on her to compensate the company for any negative Brexit consequences as a condition for new investment.
The government welcomed the news, with May saying Nissan’s announcement “shows Britain is open for business.’’ Her predecessor David Cameron invoked Nissan in March in a warning that leaving the EU meant the “ongoing presence of car manufacturing at this scale simply can’t be guaranteed.”
London Building
Nissan isn’t the only company to commit to the U.K. this week. Even with questions over how London-based financial institutions will do business with the EU after Brexit actually happens, Axa SA’s real estate unit said it will proceed with a plan to build the tallest approved tower in the City of London. It had reviewed the project after the referendum.

The latest U.K. expansion marked a 15th quarter of growth and leaves the economy on course to match Germany and outpace the broader euro-area this year, underpinning the case of those who argue the U.K. didn’t need to be in the EU to prosper.
“In the short term this is a relief for the euro skeptic and hard-core pro-Brexit camp,” said Carsten Nickel, deputy director of research at Teneo Intelligence in Brussels. That “could pose additional risks, in my view, for the medium- to longer-term because the more emboldened this constituency feels, the more dangerous this gets for the outlook.”
The headline GDP number only tells part of the story, with expansion entirely driven by services. Manufacturing, construction and agriculture all declined in the quarter, and Blanchflower said “the suspicion is there’ll be more slowing to come.”
In a blow to banks, Trade Minister Mark Garnier told Bloomberg on Wednesday that they’re unlikely to keep enjoying so-called passporting rights which enable them to operate within the EU from bases in London. Barclays CEO Jes Staley said Thursday his finger isn’t “quivering” above the relocation button, and there would be no “one momentous decision” on the issue.
Still overhanging the U.K. is when May will trigger formal exit negotiations and just what her plan is for future relations with the bloc. That’s creating uncertainty that could still prompt banks to flee and put the brakes on company and household spending.
Despite being wrong-stepped by the economy’s fortitude so far, most economists counsel that the Brexit effect will take time. The median forecast for 2017 is for expansion of about 1 percent, half the pace projected for this year, and an acceleration in inflation is already eroding incomes.
BT Group Plc Chief Executive Officer Gavin Patterson said Thursday that a “high degree of uncertainty’’ in the U.K would still put “investment at risk across the whole of the market.” Telefonica SA delayed a potential sale of shares in its O2 U.K. mobile-phone unit until at least next year, and Switzerland’s ABB Ltd. said orders plunged because customers were less willing to make big purchases amid the U.K.’s withdrawal.
“What is damaging first and foremost is the uncertainty,’’ IMF Managing Director Christine Lagarde told Bloomberg Television today. “What will be the relationship? It is not healthy. For the next two-and-a-half years we know that the situation is unchanged and yet everything is changed.”
Source: Bloomberg