CAN PRAGMATISM OVERCOME POLITICS IN EU TRADE NEGOTIATIONS?
This week the market has been conflicted, caught between optimism over coronavirus and pessimism over Brexit. The negotiations over future trade relations are really coming down to the wire. The headlines have been about fish, but this is just a distraction and it will mostly come down to whether the two sides can agree to a level playing field. This is unfortunate as while fishing rights don’t really matter in terms of economic importance, and could easily have been sacrificed, the level playing field is a core principle that the EU won’t compromise on.
Despite all the bluster the issue is incredibly simple. Because of the size and proximity of the UK, the EU won’t give much access to its markets unless the UK promises not to undercut European firms by slashing regulations after the deal is done. In certain circles this is tantamount to “sticking to EU rules” and is out of the question. There is little demand in the country for a huge regime change in regulation – see the protests over chlorinated chicken, for example. So, while a deal is there in a practical sense, it remains to be seen if it exists in a political sense.
GLOBAL: UK ECONOMY AMONGST WORST AFFECTED IN 2020
Further evidence of the damage caused by Covid-19 to the UK’s economy was provided by the OECD this week. It predicts that among the world’s major economies only Argentina will see greater decline in GDP. The latest OECD forecast shows the UK contracting by 11.2 per cent this year compared with a global average contraction of 4.2 and 7.5 for the Eurozone. The US will see the smallest contraction amongst developed economies, shrinking by 3.7 per cent, while China is the only major economy to see growth this year.
The UK’s poor performance has been attributed to a drop in consumer spending in the fourth quarter of the year as coronavirus restrictions choked off the initial recovery. GDP growth is expected to return in 2021 with growth of 4.2 per cent, in line with the global average, driven by a recovery in consumer spending as well as government support. Business investment expected to remain at low levels until the UK’s future relationship with the EU is settled.
COMMODITIES: CHINESE DEMAND DRIVES SURGE IN COPPER & IRON ORE
The price of copper hit a seven-year high as China’s ongoing economic recovery and its focus on renewable energy continues to drive demand. Copper is up almost 24 per cent this year, with the price increasing by more than 13 per cent in November as data shows industrial production in China and Korea is growing faster than expected. A weaker dollar and the increased interest in renewal energy worldwide has also contributed to the recent price rise.
Other industrial metals are also seeing the effect of the increase in demand from China as well as a drop in supply. Iron Ore hit its highest value since 2013 and so far the price has increased by 90 per cent in 2020. The rally in industrial metals has helped push shares of UK-based mining groups like BHP Group and Rio Tinto into positive returns for the year, while copper miner Antofagasta is up around 60 per cent.
UK: DECLINE OF HIGH STREET RETAILERS ACCELERATES
The clear out of high street stalwarts continued as Arcadia, Debenhams and Bonmarche all went into administration this week, putting more than 26,000 jobs at risk. They follow fashion retailers Peacocks, Jaeger and Edinburgh Woollen Mill which all went into administration last month.
Coronavirus lockdowns saw high street shops closed for a large part of the year and shoppers went online instead. The shift has been particularly swift for clothing sales but this is merely an acceleration of a longer-term trend. While Debenhams and Arcadia have been struggling under the weight of their debts, as well as considerably higher costs than online rivals, many retailers, particularly fashion retailers, have seen sales fall steadily in recent years. The outlook for the high street remains poor with other retailers like New Look also struggling. New Look is currently in voluntary administration but this is being challenged by its landlords. Closures will add pressure to other high street shops as big retailers often act as a magnet to draw in shoppers.