Official data has a habit of being out of sync and lagging, necessarily as its aim is to get an accurate understanding of performance, that takes time, effort and a drive for quality. Big decisions are made on this data and we need to know it’s right. But how do we know what’s going on now given the time issues?
This takes a balanced approach, using short term leading indicators, near to the activity and reflecting on the official statistics for accuracy, evidence and reflection. The man indicator of productivity used to measure regional performance is GVA, released yearly in December, this first release is an estimate and is revised backwards in subsequent years.
What does the latest data say now for the West Midlands?
The general state of the economy is that issues we saw last year in the Purchasing Managers Index are now coming through in official quarterly GDP data. This is after a very strong performance in previous years, but generally, the outlook in current data is more positive following the certainty of Brexit.
- ONS annual GVA data for 2018 (released in December 2019 and the most accurate data for that year) shows the economy was at £105bn, this was revised upwards and growth was above the UK level at 4.6% versus 3.4%. Higher than initial estimates predicted.
- More recent ONS quarterly GDP April to June 2019 – the West Midlands was negative by 1.6%. Production had largest negative growth (2.6%), with construction (1.8%), services (1.3%) and agriculture sectors (0.6%) all falling.
- Construction continues to make the largest contribution to growth and finance has seen a significant rise (6.9% and an overall contribution of 0.30pp) this could potentially be HSBC hitting the numbers. On the previous year, growth was also negative for the region 0.6%, whilst London continues to see substantial growth at 4.5%.
- PMI – there has been a rise in orders for first time in December with firms optimistic and expectations at a high, business activity has had the strongest upturn with PMI at 51.6 since April last year. The has been a continued reduction in backorders and a decrease in outputs focused on the manufacturing sector, whilst Recruitment has barely changed. Growth is being driven by higher business volumes in the service sector. However, it is overall weaker in the region than elsewhere in the UK.
- PWC – economic growth modest for 2020, but risks weighted on the downside. Consumer spending has driven the economy but the housing market cooled and business investment declining.
- BoE – early signs growth picking up, but if it doesn’t materialise then we should expect an interest rate fall
But will Coronavirus affect this outlook?
- China and global slow down – Oxford Economics forecast dropped from 6.1% to 5.6% growth which could reduce global growth by 0.2%. China is now the world’s second-biggest economy unlike when SARS hit and is the largest trader in the world and central to many supply chains.
- Internationally, lower growth continues, and with the effect of Coronavirus, this could dip to lowest since the financial crash. So far the shut down has been in the normal lunar period so the impact will be modest. But if it continues, the impact could rise significantly especially on the automotive supply chain. Wuhan is central to that sector with 50% of all its manufacturing in this sector and 25% in technology supplies.
- Rebound is shaky due to large Chinese debts and although the government is pumping funds into businesses, this is likely to be into zombie firms.
- The Travel and Tourism sectors are at high-risk, passengers from China have dropped by 55% in the lunar New Year period and they spend more than any other country internationally. This may have a short term impact on oil sales.
- Retail and hospitality is taking a hit due to to the knock-on impact of fear associated with the virus.
- Automotive, electronic and industrial supply chains are weakening, with a sharp drop in container volumes. All Toyota plants in China have been shut down.
- Student numbers could be hit for next year as this is the major recruitment period and students not returning will create a drop in expenditure locally.
Understanding the current economic conditions requires an appreciation of the past, present and future. A recognition and interpretation of the data and an understanding of the difference between data points and how they build an accurate picture of the current landscape. Otherwise, actions that may need to be taken in response to the data may be too late or inappropriate.
This blog was written by Rebecca Riley, Administrative Director, City-REDI.
The views expressed in this analysis post are those of the authors and not necessarily those of City-REDI or the University of Birmingham.
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