What are EEF's economists thinking about?
- Will it be recovery or recessionary relapse? The big bad banks think the recovery is already taking root, and so are worried about inflation. We're more cautious (not necessarily pessimistic) because we know that the prospects of a double-dip downturn or an L-shaped recession are keeping manufacturers up at night.
- QE quandry. The BoE has been at pains to talk down the green-shoots/glass-half-full types. But then they decided not to expand their QE activity. They could do more, but not in gilts. They could do more by focusing on a wider basket of gilts. Or they could start unwinding their foray into the unconventional...but that suggests that interest-rate hikes are just that much closer. And taking money out of the economy before the recovery takes hold could kill any signs of growth.
- The need to save. The first phase of the recession - rapid destocking - is over, but a second, more damaging phase may be beginning. Consumers and the government are incredibly overleveraged and need to start saving. More saving means less consumption. Less consumption leads to lower GDP growth and lower income. Lower incomes means less savings, increasing the need to boost savings, which in turn means lower consumption, etc... And the central theme in the run-up to the election is already cuts in public sector spending. All this dampens the prospect of a quick return to growth.
- What's happening to global growth? There are tentative signs that growth in Asia is rebounding. But why, then, are commodity prices on the retreat?
Unfortunately, there are no simple answers.
Hopefully, though, we'll be able to address each of these in more depth as the week goes on.