Three months before the start of the biggest financial crisis since the Wall Street Crash, the International Monetary Fund confidently predicted that the world economy looked “well set” for robust growth in 2007 and 2008. Sure there were risks, said the IMF, but these seemed less threatening in April 2007 than six months previously.
The IMF was not, of course, the only organisation that failed to spot economic armageddon coming – merely the one with the highest number of PhDs on the books. But if the fund’s patchy past record means all its forecasts should be treated with caution, its growth downgrade for the UK looks perfectly reasonable.
Official data for the state of the British economy in the first three months of this year were not available in April when the fund produced its half-yearly World Economic Outlook, but it assumed something stronger than the 0.2% expansion that was eventually announced. Even if the second, third and fourth quarters live up to the IMF’s expectations, the weaker first quarter arithmetically feeds through into growth for 2017 as a whole of 1.7% rather than 2%.
Although Wednesday’s first estimate of second-quarter growth will show an improvement on the first quarter, it is clear the UK economy was not going gangbusters in the spring either. It looks likely that the UK posted growth of 0.3% or 0.4%, suggesting the economy expanded at an annualised rate of 1% in the first half of 2017. A further IMF downgrade to about 1.5% in the autumn looks probable unless the stronger growth the IMF sees in the eurozone and the bigger emerging markets is sustained and leads to higher demand for UK exports.
The IMF thinks the global economy is on the up but is still hedging its bets. It is concerned that China is sustaining growth through a credit bubble. It is worried about Donald Trump launching a trade war. It fears overvalued financial markets could be heading for a fall. Such caution is perhaps a decade too late, but understandable. The IMF has no desire to be caught with its trousers down a second time.
EasyJet and Ryanair brought down to earth
So much for the idea that easyJet and Ryanair, after a tricky 2016, were about to enjoy sunny trading conditions this year. That theory has been running for months, which is why the loss of altitude in share prices since last Thursday has been severe. EasyJet’s shares have lost a 10th of their value and Ryanair’s 5%.
Monday’s culprit was the Irish carrier’s warning that the market remains “very competitive” and fares are still falling. A similar tale was heard at easyJet last week. The group upgraded its profit forecast for the year after a strong Easter but reported “continuing high market growth” in capacity, especially in Spain and Portugal, putting pressure on prices.
In one sense, this development is not surprising. It is easier for smaller rivals to buy new aircraft and add new routes when fuel prices are low. Nor does this year’s experience dent the wisdom of easyJet and Ryanair adding capacity themselves: they’re market leaders and, if they see a long-term opportunity on a new route, they should chase it.
But both easyJet and Ryanair may have been guilty of over-hyping the thought that rivals can’t live with the pace they’re setting. All that talk about rivals that struggle with “high cost bases” and “inadequate financial resources” – two lines from easyJet’s full-year results last autumn – now ring a little hollow. Thankfully for flyers, those rivals are still capable of being irritating by surviving.
AstraZeneca chief should have scotched speculation
“Nothing can break the momentum you have established, and certainly not rumours,” said AstraZeneca chief executive Pascal Soriot in a “dear all” email to staff at the end of last week.
No doubt the dispatch improved spirits, as well as the share price, but it pointedly avoided the central question of whether Soriot held discussions about joining Israeli outfit Teva Pharmaceuticals. He’s clearly staying at AstraZeneca, but the quickest way to kill the gossip outright would be state that the Teva tale was 100% nonsense.
Soriot will get another chance on Thursday when he fields questions on AstraZeneca’s half-year results. A clear answer would be preferable to the elaborate argument that commenting on speculation can create “downstream consquences that may be difficult to manage”. Not commenting also has consequences: staff assume the boss’s head was turned, even if only briefly.