ALEX BRUMMER: Problems in Europe reflect a weakening of the global economy
Searching for a comfort blanket as the nation seeks to extricate itself from the Westminster bedlam? Then take a look at our Continental partners.
In Britain there has been much teeth-gnashing from UK-based car markers about the impact of Brexit. Honda is pulling back, while the world’s largest car producer Toyota is investing anew.
Fortunately for the UK, we are not an economy driven by motor manufacturing. Germany’s domination of the highly engineered motor industry has been something to envy.
One way or the other: In Britain there has been much teeth-gnashing about the impact of Brexit
Exports to the world’s two largest economies the US and China have driven growth, employment and trade surpluses.
But manufacturing is now being hit in a pincer movement of trade tensions and a generational shift from diesel and petrol to electric vehicles.
Confidence in the integrity of the German industry is still being shaken by the emissions scandal, as well as the blundering behaviour of Volkswagen’s chief executive Herbert Diess and his use of the phrase ‘ebit macht frei’ – a play on the words at the entrance to the Auschwitz death camp.
Careless talk apart, latest data from Germany shows manufacturing sinking like a stone, with the purchasing managers’ index well into recession territory.
Indeed, while the UK continues to add jobs, manufacturers in Germany are starting to lay workers off.
As for France, it too is in slump territory. Both goods producers and service companies report sharp slowdowns, and – worryingly for President Macron as he seeks to hold back the tide of yellow jacket protesters – there is also a decline in new orders.
Problems in Europe reflect a weakening of the global economy. Central banks are once again stepping into a policy vacuum. The European Central Bank is pumping ever larger sums into the eurozone banking system. US Federal Reserve chairman Jay Powell has done a reverse ferret, signalling that there will almost certainly be no interest rate rise this year. The Bank of England is sitting on its hands in spite of evidence that 80 per cent of companies are now prepared for a No Deal Brexit and a tightening labour market.
In normal circumstances, the case for lifting the bank rate from the current 0.75 per cent might start to be made by some of the more hawkish nine members of the Monetary Policy Committee.
But with Brexit in the headlights, the Fed in retreat and German bond rates tumbling into negative territory, that is not going to happen.
The fall from grace of the Royal Mail is remarkable. The choice of former British Airways boss Keith Williams as the third chairman of the postal service in a year did not offer much comfort to investors, with the shares dropping a further 2.45 per cent in latest trading. The stock halved in value over the last year and the forward dividend yield stands at 9.4 per cent – a sure sign of stress.
Chief executive Rico Back, brought in last year at great expense from the company’s Continental logistics operation GLS, faces an uphill task. There is recognition that the letter post and the burden of maintaining the universal postal service is never going to generate the revenues it once did. Snail-mail is a victim of the communications revolution. As someone involved in a residential property sale at present, I am more than aware that all the contract documentation and advice now comes by secure email. That is true not just for Britain, but across borders too.
So what will Williams do? It is plainly too early to depose the chief executive especially one who knows about parcel services. It is expected when the next capital markets presentation comes up in six weeks or so Back will set out a plan to put parcels first, focusing on Royal Mail’s ability to reach postal codes that other delivery firms cannot. It has the advantage of 12,000 post offices up and down the land, and sorting offices as drop-off and return centres for online traders and consumers.
But that would require a revolution in unhelpful opening hours.
Debenhams has resisted pressure from Mike Ashley to use his 29.7 per cent stake to buy the stores group on the cheap. If Debs is successful in persuading bankers and hedge funds to come up with £200m of new funding, then equity holders including Ashley will be swept into the sea. Another blow for the effort to create a Harrods of the High Street filled with Sports Direct’s uncool brands.