By Neel Shah and Rishi Shah
NISSAN X-TRAIL DRIVEN OFFSHORE - BREXIT UNCERTAINTY
Nissan’s new SUV, the X-Trail, will no longer be built in the Sunderland plant, with expected production now solely in Kyushu, Japan. Two years in 2016, Nissan, with assurances from the UK government, stated ‘there was a good business case for bringing production to Europe’. However, since then a range of factors have limited profitability of production in Europe, causing Nissan to change their decision on production.
Nissan has claimed that this was based on a variety of factors facing the industry, including falling demand for cars on a global scale, changing emissions regulations in Europe (with sales of new diesel cars in the UK in 2018 falling by 30%) and the fact that ‘the continued uncertainty around the UK's future relationship with the EU is not helping companies like [Nissan] to plan for the future’.
However, Nissan claims that no jobs will be lost in Sunderland as a result of this decision. This is important as it protects the 7,000 jobs provided by the firm. However, the prospect of new jobs that were to be created from production of the new model will be lost.
VENEZUELA - THE WORST ECONOMY IN THE WORLD?
Following the most recent set of elections, which are claimed to have been rigged, Venezuela is at the brink of civil war. However, the threat of intervention by Trump and other global leaders appears to have fuelled further fire, with ‘president’ Maduro (the challenged leader) willing to use the army to intervene, rejecting EU deadlines for new votes and warning to leave the White House ‘stained with blood’. However, one of the main reasons Venezuela face political crisis is the state of the damaged economy.
According to the IMF, the Venezuelan economy has contracted by 1/3rd under Maduro, between 2013 and 2017, shrinking by a further 18% in 2018. In addition, hyperinflation is expected to reach 10,000,000% by the end of 2019. The rate in July 2018, 33,151%, was the 23rd worst episode of hyperinflation in history, however since then it has worsened. Since 2015, 3 million people have fled Venezuela, with widespread malnutrition and shortages of fools, water and health supplies.
However, Venezuela has the largest supplies of crude oil in the world, which is part of the problem. The failure to diversify away from oil has left Venezuela prime to extreme booms and busts in their economic cycle, particularly following plummeting oil prices in 2014. However, the failure of the Venezuelans government is also to blame, with cuts to public spending resulting in sanctions placed on the nation, particularly from western nations.
The proposed interim government vying for power, under Guaidó, is backed by the US and the EU. They have proposed a six-point plan to revitalise the economy, including a free-floating exchange rate, opening the oil sector to private competition, debt restructuring, regulation and moving to a cash-based society (as opposed to one based on goods). In addition, the government aims to stop money printing to finance government spending, one of the initial causes of the nation’s hyperinflation. However, these proposals can only be implemented once this government gain power. As a result, the political stalemate will doom the economy to further crises.
US DOMINATING THE HEADLINES
Since Donald Trump began his reign, USA has been constantly in the news. The past few weeks has seen a plethora of different headlines all revolving around this economic superpower.
Firstly, January 2019 saw the addition of 304,000 jobs to the US economy, and despite the longest-ever government shutdown causing a spike in unemployment, overall the US economy flourished. Despite the effects of the trade war, falling global demand, slowing global growth, trade tensions, and recent dips in consumer confidence, the US economy showed its resilience. The Federal Reserve, has to Trump’s dismay been incrementally increasing interest rates, perhaps to offer greater future opportunity to deal with crises, and this is expected to continue into 2019.
Also, there was also an optimistic break-through in the US-China trade talks. This may signal the end of the US protectionist measures used as defence against intellectual property theft in China. This week saw a two-day meeting in Washington, where although no deal was reached, China pledged to buy more US soybeans. Overall, it is looking more likely that a trade deal will be forged before early March, to prevent the further onslaught of tariffs which will spell global problems.
BREXIT, BREXIT AND MORE BREXIT
The UK economy, has been troubled with the clouds of Brexit looming over. The first effect is that UK house prices grew at the slowest yearly rate for nearly six years. This is due to the high economic uncertainty for buyers which is affecting their willingness to purchase real estate. This has reduced the demand and growth for homes almost to a standstill, with prices up by just 0.1% from a year earlier, down from a rate of 0.5% in December. Even though the UK economy can celebrate the solid employment growth, stronger wage growth and continued low borrowing costs and interest rates, it is insignificant due to the economic climate not conducive to house buying or investing.
Moreover, there is also a looming threat of inflation, and even worse shortages. Many of our imported foods will see an increase in the cost of production. Firms will have to trade in a different way due to the tariffs applied, follow new inspections and this means they add new processes to current situations. Cumulatively this will require more work, more time, more people to make checks and all that means more costs. His increases the cost of production and due to the low profit margins ti will be passed on to the consumer through higher prices.
Finally, there could be the loss of the all-important FDI, and foreign firms operating in the UK. Drastically, there may even be the loss of UK firms who move abroad to access the single market. Investment in the UK car sector, which is a key manufacturing powerhouse, almost halved in size last year and output tumbled due to Brexit fears. Inward investment fell 46.5% to £588.6m last year from £1.1bn in 2017, while production fell 9.1% to 1.52m vehicles. If the UK loses the frictionless trade links we currently have, it will have severe consequences to many industries who rely on the global demand.
No-one really knows what the future of Brexit is, however, there is the one common consensus which is that a no-deal scenario spells trouble.