Britain’s boosting economy backfires
It seems that the UK’s recent substantial economic growth has brought with it some costly repercussions. Britain has been told that it must contribute an additional £1.7bn towards the European Union budget by the end of November as a result of its relative economic success. However, the UK is not alone in this. The Netherlands have also fallen foul to their own economic growth and have been ordered to fork up an extra €600m whilst countries such as Germany and France are looking to have their excess contributions returned.
This has prompted stiff criticism from the ever-increasing Euro-sceptic demographic within the UK and Nigel Farage, leader of the UKIP part believes ‘Cameron has to veto this if he is to have any credibility at all.’ However, the criticism does not stop there with many leading Tories also condemning the EU’s demands, including MP Tracey Crouch who says that ‘you should not punish countries that are working hard to recover from the great recession.’ The commission’s demand comes at a difficult time for Cameron, who after recent Tory defections, is suffering at the hands of anti-EU sentiment and it will certainly be interesting to see how events unfold during the coming weeks.
UK Interest rates: lower for longer
Sir Jon Cunliffe, deputy governor of the Bank of England believes that interest rates should stay lower for longer as the UK economy pushes itself out of the economic crisis. This September saw the lowest inflation rate in five years at 1.2pc and Cunliffe believes that with the weaker external environment the UK can afford to maintain this current degree of monetary stimulus for longer than previously thought. He also believes that the experience of the recession has left a long lasting effect on UK workers who have accepted the reality of their lower wage levels, which in turn has helped combat British unemployment.
With this news in mind, expectations of a rise in interest rates have been pushed back to the summer of 2015. The current rate of 0.5% is now only expected to rise to 1% rather than 1.25% by the end of 2015 and this gradually continue to 2% by the end of 2016.
Facebook spending set for sharp increase
Facebook have warned of a 75% expenses increase for 2015 due to its recent acquisitions of WhatsApp and Oculus Rift and this has prompted its shares to fall by 10%. The Social Networking site, which has experienced a 90% increase in profits from 2013, has seen this success largely due to its advertising business. Whilst only a year ago, mobile advertising accounted for less than half of its total advertising revenue, it now boasts an impressive 66% stake. What is particularly interesting however, is the future for Facebook and its potential acquisitions. Chief financial officer Dave Wehner has outlined that they believe that they have substantial growth opportunities in front of them, which they plan to capitalise on. So what’s next for Mark Zuckerberg’s empire?
BP hit by Western sanctions against Russia
Russia has been drastically affected by Western sanctions over the Ukraine crisis and as a result of plummeting oil prices, the Bank of America has predicted a 1.5% reduction in Russia’s economy for 2015. The falling value of Russia’s currency, prompted by declining oil prices has meant that the Russian Central Bank has spent almost $7bn this month alone stabilising the Rouble which is currently at an all time low. The wide-reaching impact of this can be seen directly in recent events at BP.
As a large investor in Russia through its 20% holding in Rosneft, the depreciation of the Rouble has had a hard hitting impact on BP’s net income from Rosneft which fell from $808m to $110m during the July – September period. Despite this and the fact that BP has paid out another $314m to the fatal Deepwater Horizon oil rig explosion, BP’s share price has increased by 0.4% and Chief Executive Bob Dudley has outlined that BP are still on track to hit their 204 targets.
Gloom and doom for the German economy
Fears have emerged surrounding Germany’s economy and its potential to drag the rest of Europe kicking and screaming back into the recession. Previously seen as the Eurozone’s powerhouse, Germany’s economic reputation has certainly seen better days. With predicted growth for 2014 down to 1.2% from 1.8%, concerns are rising that the third-quarter figures could illustrate another contraction, which would technically constitute a German recession.
Figures published on October 27th showcased the sixth consecutive monthly fall in business confidence and painted a particularly gloomy picture for Germany in 2015. The DIHK report pointed to international crises, including the turmoil in Eastern Europe as the reason behind this and outlined that German companies are becoming increasingly skeptical about developments in domestic demand. These reports have undoubtedly increased the pressure on Angela Merkel from her EU partners to increase public spending. However, Berlin remains clear that it wants to prioritise boosting private over public investment spending in a bid to commit to its zero deficit and has rejected French advice to increase investment by €50bn over three years. Considering Germany’s position as the largest economy on the currency bloc, future developments within the German economy will have clear and direct impacts in the wider Eurozone, especially considering the current economic struggles in France and Italy.
The economic impact of Ebola
The past few weeks have seen an influx of Ebola outbreaks and with reports of the disease popping up outside of Africa it has quickly become a widespread concern. However, on top of the obvious health concerns that this brings, it seems that this disease could also bring a number of economic issues. Sierra Leone’s agricultural sector has seen the brunt of the economic impact with farms suffering dramatically from human losses. However, Ebola has also caused a huge hindrance to the mining industry with significant disruptions to mining projects in Liberia. Furthermore, Sierra Leone’s economic growth has been directly hampered as London Mining, a small British company, have moved out some of its non-essential expatriate staff from Sierra Leone, which previously accounted for much of the country’s growth. However, the Ebola anxiety is increasingly penetrating western society, and this has caused many investors to assess the potential economic damage this outbreak could cause. Whilst an Ebola outbreak presents an opportunistic environment for pharmaceutical companies this good fortune is not likely to be shared by other sectors.
Concerns regarding air travel were heightened earlier this month after a Dallas nurse, who treated an Ebola patient, flew between Dallas and Cleveland before being diagnosed. Similarly, shares in cruise ship operators Carnvial and Royal Caribbean Cruises have suffered after a healthcare worker who handled Ebola test samples was quarantined on a cruise ship a few weeks ago. Furthermore, should these concerns with travelling persist, Hotel companies may see economic trouble as people hold off on their holiday plans and Dave Lutz of Jones Trading predicts that Ebola could impact amusement park operators and movie theatres as people cut back on leisure activities. As Ebola creeps across Europe and into some American states will we see companies making specific preparations for potential Ebola shortcomings?