Still in the dark
Current economic afflictions are leaving analysts and investors in the dark. But can anyone see the light at the end of the tunnel yet?
Everyone - and that includes the bankers CEOs, politicians, villagers, factory workers and lollipop ladies - have learnt some harsh lessons over the last 18 months about credit and debt; profit and losses.
For those investors who didn’t get it the first time round when Northern Rock collapsed in February, there was always the latter part of the year to weep as the commodities market rose and then fell by record proportions.
In some cases, most notably oil, millions of pounds were made over the course of weeks, days even, only for profits to be lost just as fast when price plummeted.
Behind most losses was an underlying misunderstanding of the drivers affecting change. The current market demonstrates very well that the simplistic notion of supply and demand (UK homes, world oil) is not enough to guarantee profit.
The key of course is not supply, but demand, a feature the motor industry has known all about for decades. Honda shut its British factory for four months on Friday January 30 amid falling sales and rising costs. The Swindon plant is not expected to start up again until June 1.
Although the firm’s 4,200 workers will receive full basic pay for the first two months, the future is unclear after Honda announced a 90 percent fall in third-quarter profits. The announcement came just hours after US car giant Ford announced a $14.6bn annual loss, the worst performance in its history. On the same day as the Honda plant closed, Britain’s Prime Minister stood up at the WEF in Davos to appeal to the international community not to resort to protectionism.
Gordon Brown insisted the global downturn was a problem that could not be solved by individual, national measures.
“This is the time for the world to come together as one," he said.
Claims that Iceland plans a fast track membership of the EU before the spring were perhaps not far from Brown’s mind.
The conservative government collapsed this week as a result of the countries financial woes.
If problems in Europe and America are significant, the rest of the world is of course struggling too. And that’s the point.
Figures from Japan have revealed its industrial output fell almost 10 percent last month.
Unemployment rose to 4.4 percent in December - its largest monthly rise for 42 years - from 3.9 percent a month earlier. The jobless total has risen over the last year by 390,000 to 2.7 million, as the fear of deflation and flat consumer spending returned to haunt companies and their employees. The IMF had much to say about Britain’s economic position as the worst affected of the G7 countries. But Japan is in second place.
The forecast could mean Japan is experiencing a worse crisis than that which crippled it in the early 1990s.
The Bank of Japan has followed other leading banks in bringing down interest rates to just above zero. The government has launched a $16.7bn fund to buy shares in companies facing collapse as part of a wider $53bn package aimed at regenerating the economy.
Recapitalisation of world banks is estimated to have cost $900bn, while countries have offered guaranteed to banking systems worth $7trn.
Brown is of course right, we are all in it together. Even the Chinese. That, at least in these dark times, is a comforting thought.
