1 UK growth forecast cut (Larry Elliott in The
Guardian) George Osborne has received a second pre-Christmas setback after
official figures showing a stuttering performance by the economy in the months
following the general election put the government’s 2015 growth forecast at
risk.
Following much worse than expected borrowing figures
on Tuesday, the Office for National Statistics pared back its estimate for
gross domestic product in the third quarter of the year - and said activity had
also been weaker in the previous three months.
The ONS originally said growth in the three months
to September was 0.5%, but said new data showing a sharper slowdown in the UK’s
dominant service sector had resulted in the estimate being cut to 0.4%. With
growth in the second quarter also revised down – from 0.7% to 0.5% – the annual
rise in GDP in the year to the end of September has been trimmed from 2.3% to
2.1%.
News of the GDP slowdown followed Tuesday’s ONS
figures, which cast doubt on whether the chancellor would be able to meet his
deficit-reduction target for the 2015-16 financial year. The government
borrowed 10% more in November 2015 than it did in the same month of 2014 and in
the first eight months of the year borrowed almost £67bn, only £2bn less than
the forecast for the year as a whole.
2 Security, economy top priorities for Saudi Arabia
in 2016 (San Francisco Chronicle) Saudi Arabia's monarch has said that security
and economic development remain the country's top priorities for the coming
year as low oil prices keep decreasing the kingdom's revenue.
In a two-minute speech, King Salman outlined his
domestic and foreign policies, which he said are aimed at serving Arab and
Islamic causes as well as fighting terrorism. Since assuming the throne in
January after the death of his half-brother King Abdullah, former defense
minister Salman has made security his foremost concern.
Two months into Salman's reign, he launched an
offensive into Yemen against Iranian-backed Shiite rebels, known as Houthis,
who had overrun the capital and other cities in the country, forcing the
president and the internationally-recognized government to flee for several
months to Saudi Arabia.
In April, he set a new course for the monarchy's
future, recasting the line of succession and naming his nephew, Interior
Minister Mohammed bin Nayef, as his successor. His 30-year-old son, Mohammed
bin Salman, was appointed defense minister and second-in-line to the throne.
Efforts to diversify the kingdom's economy took on
greater urgency as the price of oil — the backbone of Saudi economy — fell by
around half since mid-2014. The king stressed the importance of continued
investments in health care, education, housing, employment and transportation.
Salman also said the country is committed to
diversifying the kingdom's sources of income and decreasing its dependence on
oil. The 2016 budget is expected to be announced next week, with investors
eyeing closely to see if cuts are made and to which sectors. The International
Monetary Fund estimates that Saudi Arabia will post a budget deficit of more
than 20 percent of gross domestic product this year, or amounting to anywhere
between $100 billion to $150 billion.
3 Oil fall and income redistribution (Andrew Walker
on BBC) The fall in oil prices in the last 18 months is a large-scale
international redistribution of income, from sellers to buyers. We have looked
at the impact on some of the losers, the oil exporters. But what about the
winners i.e. the oil importers?
A fall in the oil price is often seen as similar in
its effects to a tax cut for consumers. It means they have more to spend on
other goods and services, some of which will be produced by businesses in the
same country. It also reduces costs for businesses that use oil products -
which means any that have goods to transport, plus the petrochemical industry
which makes plastics, fertilisers, synthetic fabrics and much more using raw
material made from refined oil.
It also helps any that spend a lot on the goods and
services produced by these industries - farmers, for example. Take the
eurozone. In the two years before the big price fall the region's economy
contracted. Last year it grew and is doing so again this year, though
admittedly not robustly. The fall in the oil price is not the only factor, but
it surely helped.
There's another benefit from cheaper oil. Many
countries subsidise fuel. The International Energy Agency estimates that in
2014 global subsidies for fossil fuels were worth almost $500bn. Of that, some
$267bn went on fuels made from oil. Cheaper oil means that governments can cut
subsidies while consumers pay unchanged prices.
That's the upside. But even for net oil importers
there's a downside. Take the US. It is a net importer but the beneficial impact
is not quite as pronounced as it would have been a decade ago. The reason: the
rise of shale oil. It means that US dependence on foreign oil has declined
markedly. In 2005 the US met 35% of its own crude oil needs. Last year the
figure was 61%. The rise of shale oil means there is a larger chunk of the
American economy that is vulnerable to the effects of cheaper oil.
As long as it's just energy prices that are falling,
it's not a major problem. But central bankers are wary of what they call second
round effects - if prices and pay agreements start to reflect an expectation
that inflation is going to be very low or even below zero. That can lead to a
damaging spiral of falling prices or deflation.
For the most part then cheaper oil is a benefit in
most countries. But some - the oil exporters - are exceptions to that rule. And
for the rest there can be some less appealing side effects that warrant careful
scrutiny.
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