1 UK GDP passes pre-crisis level (BBC) The UK economy has returned to pre-crisis levels by expanding 0.8% in the second quarter of this year. On an annual basis gross domestic product expanded by 3.1%. The figures show the economy is now worth 0.2% more than it was at its peak in 2008, the Office for National Statistics said.
The service sector is the only part of the economy that has passed its previous 2008 peak, although that accounts for almost 80% of UK output. Other key sectors, including construction, industrial production and manufacturing, have yet to outstrip levels reached in 2008. The UK economy is forecast to be the fastest growing among the G7 developed nations, according to the International Monetary Fund (IMF).
On Thursday, the IMF predicted the UK would expand by 3.2% this year, up from a previous forecast of 2.8%. But shadow chancellor, Ed Balls, said people were not feeling happier: “With GDP per head not set to recover for three more years and [with] most people still seeing their living standards squeezed this is no time for complacent claims that the economy is fixed.”
2 India threatens to derail WTO deal (Straits Times) India threatened on Friday to block a worldwide reform of custom rules, which some estimates say could add US$1 trillion to the global economy and create 21 million jobs, prompting a US warning that its demands could kill global trade reform efforts.
Diplomats from the 160 World Trade Organisation member countries meeting in Geneva had been meant to rubber stamp a deal on “trade facilitation” that was agreed at talks in Bali last December in the WTO’s first ever global trade agreement.
But India, in an 11th-hour intervention, demanded a halt to the trade facilitation timetable until the end of the year and said a permanent WTO deal on food stockpiling must be in place at the same time, well ahead of an agreed 2017 target date.
3 Being wary of ‘caring capitalism’ (Alex Andreou in The Guardian) The world was abuzz in the 90s with conversations of whether capitalism could indeed be “caring”. Twenty years later, while inequality continues to grow and the world is becoming increasingly volatile, we are still having the same conversation.
Capitalism, in its unadulterated form, is not caring. It is not inclusive, responsible or ethical. It is fast, callous, amoral, decisive, aggressive, self-interested and only cares about one thing: the bottom line. This is not a criticism. It is just how it is built. Attempts to convert it, to make it look further than the short term, evoke the tale of a frog sinking in a river, with a scorpion on its back, asking “but why?”
Multimillionaire Nick Hanauer put it succinctly, if rather colourfully: “If we don’t do something to fix the glaring inequities in this economy, the pitchforks are going to come for us. No society can sustain this kind of rising inequality. In fact there is no example in human history where wealth accumulated like this and the pitchforks didn’t eventually come out … There are no counterexamples. None.”
The question is whether a shark can be taught moderation. Some have suggested that there are compelling economic reasons of self-interest why it must. That companies with a “conscience” actually do better in the long run when they stand together. Others, like Joseph Thorndike, are less optimistic: “Inequality is dangerous, and rich people should get serious about dealing with it. But that doesn’t mean they will. After all, they never have before.”
4 Fear of another tech bubble (Khaeej Times) The US Federal Reserve chairwoman Janet Yellen recently called the stock valuations of small biotech and social media firms “substantially stretched”. Her statement is akin to an official US warning of a potential tech bubble. It comes as Nasdaq’s biotech index has more than tripled in five years — after being almost unaffected by 2008’s financial crash — while the exchange’s social media index has surged 44 per cent in two years.
There are two lines of thinking on the stocks. On the one hand, yes, the companies’ valuations on the stock market are huge compared to the money they actually make. A price-earnings ratio between 10 and 17 is generally considered normal. However, USA Today has already listed an example batch of nine small biotech firms valued between 87 and 233 times their earnings. According to a Bloomberg estimate, the figure for Twitter is around 881.
On the other hand, however, high price-earning ratios could be backed by expectations of phenomenal future growth. Both biotech and social media are likely poised for such expansion. In the end, the story may diverge for biotech and social media. Many biotech startups aim to eventually make money as traditional businesses. But social media’s plans are frequently far more cloudy. There have been billion-dollar venture capital valuations for tech companies on an almost weekly basis this year. Pinterest was valued at $5 billion, Airbnb at $10 billion, and Uber at $17 billion.
These compare to Facebook being valued at $500 million in 2006 — and making front-page headlines for it. There has clearly been a significant inflation in values, without a commensurate advance in revenue generation. The market for social media ventures has had several hiccups already. Early this year, hedge funds pulled out of firms as related stock markets dipped.
Meanwhile, tech journalists in San Francisco are saying they are being inundated with invitations to schmoozing dinners as well as offers of gifts and — in some cases — free stocks. Those who were around in 1999 say it feels awfully familiar. Those who weren’t may end up being foolish enough to fall for the enticements: another cyclical bout of exuberance that could bring down the economy.