This is the week we will know. The first official estimates of GDP for the final quarter of 2009 will be published both here, in the UK, and in the US in the next few days.
For the UK it seems the recession surely ended, but in the US something far more interesting may have happened. Bloomberg has been busy surveying economists and analysts. And if the consensus view means anything, then we can conclude two things. The US has just experienced its best quarter since 2005. The UK is set to be the worst performing of the world’s largest economies.
According to the Bloomberg survey, the US economy probably expanded by 4.6 per cent in the final quarter of last year. The first official estimate from the US Commerce Department is due to be released on Friday. In the previous quarter the economy expanded by 2.2 per cent, or so the Commerce Department estimates.
Meanwhile, another Bloomberg poll painted an altogether less rosy picture for the UK. Bloomberg questioned 873 investors drawn at random from the 300,000 subscribers to its Bloomberg Professional Service. Among the questions it asked, two threw up a nasty result, at least nasty as far as the UK is concerned.
In one question the survey took 8 economies: the four countries that make up the BRICs, the EU, US, Japan and UK. It asked are you more optimistic or more pessimistic about the investment climate for each of these territories? See if you can guess who came bottom?
Umm, well you won’t need to be Brain of Britain to have worked it out. The UK was bottom, with 66 more pessimistic and a mere 26 more optimistic. Only the EU came close. Top of the list, and by quite a long way came India, with Brazil second. The US narrowly pipped China for third.
In the other question the survey listed nine famous international figures and asked respondents to indicate how they felt about each of the people. Poor old Gordon, our beloved Prime Minister came second from bottom. Only a certain Sarah Palin was received less favourably.
So that’s it then, the US is firing again, the UK is set to degenerate into third world status. It is just that if you change your view, things look different.
According to a report from Ernst and Young, a mere 50 per cent of companies in the UK issued profit warnings in the final quarter of last year, the lowest level in 6 years.
And returning to the Bloomberg surveys, a lot rather depends on how you ask the question. Bloomberg also asked respondents to list up to two economies they expected to offer the best investment opportunities in 2010. The UK came second behind the US.
And while we look with envious eyes at the US economy and its apparently impressive performance in the last quarter, just bear in mind there is another explanation. A much higher proportion of the US economy is made up of manufacturing, and the manufacturing sector is highly dependent on the inventory cycle. It seems much of the growth the US enjoyed recently was simply down to companies re-building stock, and may have been little more than the inevitable result of the big falls in inventory seen at the beginning of the recession.
But the quote of the day must surely belong to Howard Archer at IHS Global Insigh. He said “I would be astounded if the UK did not grow in the fourth quarter of 2009 and would have to seriously consider giving up economic analysis.”
A quote you will often see referred to in this column is this one from the great economists Galbraith. “The only possible benefit of economic forecasting is that it makes astrology looks respectable.” So, investors think this, or they think that. The truth is, they are guessing. They may be right they may be wrong. Few of them predicted the economic crisis. Their views are to an extent formed by the media. So the media, say one thing, for example, the UK is in trouble. They then do a survey and find the majority of people think the UK is in trouble, and the media say “see, we told you so.” Maybe a better conclusion would be simply that people are influenced by what they read.
© Investment & Business News 2013