Young Fabians Economics and Finance Society Monthly update for the month of February 2020.

1. FABIAN SOCIETY
February 2020
Economic Update

2. SUMMARY
RECENT ECONOMIC DEVELOPMENTS:
► In the UK, post-election readings indicate a bounce in sentiment as
several indicators such as business confidence, consumer confidence and
the UK PMI have improved. However, this impact might be short-lived, as
many of the drags to the economy are still in place including a
challenging global economic environment and still considerable longer-
term Brexit uncertainties.
► Global stock markets have continued to trend upwards in the months
entering 2020, in spite of a dip in January most likely caused by the global
supply chain disruptions due to the Covid-19 epidemic.
► Technology and business services were areas of strength on the UK M&A
market in 2019. However, the slowdown in global M&A activities since the
second half of 2019 has continued in the beginning of 2020.
KEY MACROECONOMIC RISKS:
► In the UK, the uncertainty around whether a free trade agreement can be
in place by the end of 2020 leads to subdued business expectations and
muted investments across all sectors.
► Global growth is vulnerable to any shock. In particularly, the of escalation
of US-China trade war remain as the biggest downside risk to global
economy.
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3. Main Economic Indicators
Indicator
Latest
change
6-month
trend
Comment
GDP growth   The UK GDP ended 2019 with a flat quarterly growth.
Current economic
activity   All three PMIs for the services, manufacturing and construction
sectors had some small expansions.
Business confidence   After reaching the lowest level since Q1 2009, business
confidence was positive in the Q1 2020 reading.
Consumer confidence
(GFK / YouGov) change  - Consumer confidence is beginning to show signs of recovery.
FTSE100/250   Recent small dips in stock prices largely due to disruptions in
global supply chains caused by the Covid-19 epidemic.
Sterling / US Dollar -  The movement of GBP against USD has been mostly flat since
the beginning of 2020.
Brent crude prices   Most recently, demand for oil has plunged in China, with a
negative impact on global prices.
UK 10yr Gilts   UK long term debt yields have begun to show a rising trend
since the end of January.

4. Source : ONS Fabian Society |YF Finance & Economics | 3
Contribution to growth
GDP quarterly growth ended 2019 at a flat rate
► GDP quarter-on-quarter growth ended 2019 at a flat rate following a year of volatile movement due to uncertainty relating
to the UK’s departure date from the EU.
► Positive growth in the services and construction sector was offset by negative growth in the manufacturing sector in the last
quarter of 2019.
-0.3
-0.2
-0.1
0
0.1
0.2
0.3
0.4
0.5
0.6
2018 Q1 2018 Q2 2018 Q3 2018 Q4 2019 Q1 2019 Q2 2019 Q3 2019 Q4
GDP quarter-on-quarter growth
-1.0%
-0.8%
-0.6%
-0.4%
-0.2%
0.0%
0.2%
0.4%
0.6%
-0.12
-0.1
-0.08
-0.06
-0.04
-0.02
0
0.02
0.04
0.06
0.08
Index of Services Index of Production Construction
Percentagepoints
Contribution to growth (%, LHS) Three-month growth (RHS)

5. UK composite growth indicator (Purchasing Managers Index, 50+ indicates growth)
Source : CIPS/Markit
PMIs in all three sectors have risen in the beginning of 2020 following the
general election
► PMIs in all three sectors rose in the
beginning of 2020 as a result of greater
certainty following the general election
and receding political uncertainty
surrounding Brexit.
► The services sector has entered
‘expansion’ territory for the first time
since Aug 2019 as a result of greater
consumer spending and business
investment. Similarly, growth in the
construction and manufacturing
sectors appears to be experiencing
mild recoveries in Jan 2020 relative to
prior months.
► Although the manufacturing PMI rose
to a nine-month peak of 50.0 that was
only last seen in April 2019, oversees
demand remains a concern as export
orders declined for the third
consecutive month.
42
47
52
57
Sep-15
Nov-15
Jan-16
Mar-16
May-16
Jul-16
Sep-16
Nov-16
Jan-17
Mar-17
May-17
Jul-17
Sep-17
Nov-17
Jan-18
Mar-18
May-18
Jul-18
Sep-18
Nov-18
Jan-19
Mar-19
May-19
Jul-19
Sep-19
Nov-19
Jan-20
Services Manufacturing Construction
Fabian Society |YF Finance & Economics | 4

6. Business Confidence, index* Consumer confidence, index*
Source: YouGov/ONS (savings ratio)
* Score over 100 means more consumers are confident than unconfident
Both business and consumer confidence are showing signs of recovery
► After reaching the lowest level in a decade in the end of 2019, business confidence is back into positive territory.
► Consumer confidence is beginning to show signs of recovery and is now close to levels last seen in October 2018.
-30
-20
-10
0
10
20
30
40
50
Q3
2010
Q3
2011
Q3
2012
Q3
2013
Q3
2014
Q3
2015
Q3
2016
Q3
2017
Q3
2018
Q3
2019
Businessconfidenceindex
ICAEW BCM (all businesses)
* Score over 0 means more businesses are confident than unconfident
-20
-15
-10
-5
0
5
10
90
95
100
105
110
115
120
Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20
GfK
YouGov/Cebr
YouGov/Cebr, Consumer Confidence Index
GfK, Consumer Confidence Index
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7. Source: Mergermarket
The beginning of 2020 has seen the trend of slowdown in M&A activity
continue
UK: announced M&A deals*
0
20
40
60
80
100
120
140
0
20
40
60
80
100
120
140
160
180
$bn
#
Total number of deals (announced) Value of deals for the past three months
► The lack of clarity surrounding Brexit
throughout 2019 hampered UK M&A, with
2019 dealmaking falling 27.2% by value
from 2018 (£184.1bn, 1,657 deals) to
£134.1bn across 1,403 deals. The country
accounted for 18.3% of European M&A by
deal count, its lowest annual share of
dealmaking since 2009 (17.1%). Source:
Mergermarket.
► However, in CCB21, 69% of UK
respondents expect to engage in M&A in
the next 12 months, compared with 45% a
year ago and 67% in April 2019. This is well
above the global figure in CCB21 of 52%
and the UK long-term average of 47%.
* Lapsed / withdrawn bids are excluded
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8. Source: uk.investing.com
Global stock markets continued to trend upwards in the months
entering 2020
UK: FTSE 100 and 250
US: S&P 500
01 Jan 2017 = 100
Global stock markets continue
to trend upwards with the S&P
500 reaching a new peak in
February 2020.
However, there were some
notable price drops across all
three stock markets in early
February. These drops can be
largely attributed to the
disruptions in global supply
chains caused by the Covid-19
epidemic.
90
100
110
120
130
140
150
160
Feb-17
Mar-17
Apr-17
May-17
Jun-17
Jul-17
Aug-17
Sep-17
Oct-17
Nov-17
Dec-17
Jan-18
Feb-18
Mar-18
Apr-18
May-18
Jun-18
Jul-18
Aug-18
Sep-18
Oct-18
Nov-18
Dec-18
Jan-19
Feb-19
Mar-19
Apr-19
May-19
Jun-19
Jul-19
Aug-19
Sep-19
Oct-19
Nov-19
Dec-19
Jan-20
Feb-20
FTSE 100 FTSE 250 S&P 500 100 benchmark
Fabian Society |YF Finance & Economics | 7

9. Source: EIA (U.S. Energy Information Administration)
Brent crude oil prices have plummeted to the lowest since December
2018
► Brent crude oil prices have fallen to the lowest since December 2018.
► Covid-19 epidemic has stunned China’s growth and the knock-on effects on the rest of the world are significant.
► The implementation of global-wide travel bans and a reduction in overall consumer demand for goods have resulted in
lower global demand for oil.
50
55
60
65
70
75
80
85
90
Jan 2018 Jun 2018 Nov 2018 Apr 2019 Sep 2019 Feb 2020
US$perbarrel
Brent crude oil prices
Fabian Society |YF Finance & Economics | 8

10. Source: Nationwide
‘Boris bounce’ – several indicators have improved but the effect could
be short-lived
January’s house price data is further
evidence of a ‘Boris bounce’, as the
Nationwide house price index shows a
modest pick-up in January. Nonetheless,
without a change in fundamentals (i.e.
growth in income and more loose credit
constraints) this effect may not last long.
The appointment of Chancellor Rishi Sunak
has been seen as a signal of looser fiscal
policy in the Budget.
Overall, some modest pick-ups in early
months of 2020 as some of the
uncertainties facing the economy are
diluted. However, some of the drags on the
economy are still in place including a
challenging global economic environment
and still considerable longer-term Brexit
uncertainties
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
Jan-16
Mar-16
May-16
Jul-16
Sep-16
Nov-16
Jan-17
Mar-17
May-17
Jul-17
Sep-17
Nov-17
Jan-18
Mar-18
May-18
Jul-18
Sep-18
Nov-18
Jan-19
Mar-19
May-19
Jul-19
Sep-19
Nov-19
Jan-20
Nationwide HPI
Year % Change 3 months moving average % change - SAAR
Fabian Society |YF Finance & Economics | 9

11. Global slowdown may be bottoming out but 2020 is still likely to be a
challenging year
► Latest surveys suggest global economic activity is at least stabilising going into 2020 after a difficult 2019.
► Hope is that stimulus undertaken, particularly by central banks, will increasingly feed through during 2020 to support growth.
However, there is limited scope in advanced economies, in particular, for monetary policy to do more in support of growth.
There is scope for fiscal policy to do more, but some governments appear reluctant to take pre-emptive action e.g. Germany.
► US-China trade relations remain as the biggest risk factor to global growth. A genuine thaw in US-China trade relations could be
a significant boost to global growth (the ‘Phase One’ deal in December helps).
0% 10% 20% 30% 40% 50% 60%
Trade war hits global growth
US recession rocks global economy
Policy uncertainty weighs on growth (e.g. trade policy)
Chinese policymakers fail to halt domestic slowdown
Market turmoil triggers global downturn
Other geopolitical tensions (e.g. relating to Korea, Syria)
Protracted Eurozone weakness (e.g. amid German…
No-deal Brexit
Global housing slump
Oil prices rise towards $100 per barrel amid…
Q3 2019 Q4 2019
What do you see as the top three downside global economic risks over the next two years?
Source: Oxford Economics Global Risk Survey Fabian Society |YF Finance & Economics | 10

12. Covid-19 epidemic is likely to slow down growth in the short term, but a
later rebound expected
►China: the rapid spread of the Covid-19 will weaken China’s GDP growth sharply in the
short term, but there are signs that the speed of the infection is slowing. In this context,
China’s senior leadership is calling for provincial and local governments to shift the
balance of policymaking from containing the outbreak to resuming economic activity.
However, given the uncertainties around how quickly the economy will be back to
normalcy, the risks are on the downside.
►Eurozone: the Eurozone finished 2019 with the weakest growth since 2013 (0.6%). The
effect of the Covid-19 on global supply chains is likely to keep growth subdued in the
short term. But the economy should slowly pick up later in 2020 as the drag from the
inventory cycle ends and global trade edges up.
►US: U.S. growth remains robust, stabilizing at 2.0%. A mild impact is expected from Covid-
19, but with downside risks. However, a looser fiscal stance and stronger household
spending power should generate a gradual pickup in quarterly growth rates.
Fabian Society |YF Finance & Economics | 11

13. THANK YOU
Secretary and Economist
Amarvir Singh-Bal
Chief Macroeconomist
Contact address:
economynetwork@youngfabians.org.uk
Chris Wongsosaputro
Main author