Poverty levels hit new high as Greek woes continue

BY Fraser Tennant

In a further depressing development for the beleaguered citizens of Greece, new research shows the under pressure European Union (EU) member state as having the highest increase of people finding themselves at risk of poverty or social exclusion, some 800,000 compared to 2008.

According to data compiled annually by Eurostat (the statistical office of the EU) on poverty rates in Europe (EU28), more than one out of three (36 percent) of the Greek population is at risk of poverty and social exclusion – the highest level in the Eurozone. Cyprus is the next closest on 28.9 percent.

The average rate for the EU28 has remained at 23.7 percent between 2008 and 2016.

Additionally, and in what should perhaps be viewed as an unfortunate piece of timing, the Eurostat findings coincide with the International Day for the Eradication of Poverty – an initiative by European decision-makers known as the Europe 2020 strategy which aims to lift 20 million people out of poverty by 2020.  

"Austerity politics have failed in the Eurozone,” is the view of Dimitris Rapidis, a policy and communication advisor at Bridging Europe. “The poverty and social exclusion rate in Greece is worsening, despite the efforts by the government to balance side effects of austerity.

“We have reached a point where even those supporting extreme financial consolidation at the expense of social cohesion and development can no longer convince even the most conservative parts of the European electorate.”

The main challenge facing progressive EU leaders, according to Mr Rapidis, is to address the appeal of far-right parties that seek to capitalise on social grievances, and foster a broader democratic alliance that can deliver a fresh, growth-oriented vision for the EU.

“Broadly speaking, the leaders of the European South that have been direly hit by austerity and financial slowdown - such as Spain, Italy and Cyprus - need to push Brussels and Berlin for change of course in practice and not exhaust their will in statements,” says Rapidis. “The EU and Eurozone have to choose between two distinct options: either gradually collapse under the pressure of nationalism and the far-right or find a way out by reviewing and improving the Stability and Growth Pact so that it can be beneficial for all member-states and leave space for flexible economic policies."

Next up for Greece is a European Council meeting in Brussels on 20 and 21 October, where prime minister Alexis Tsipras will be focusing on the second programme review, as well as attempting to source further debt relief for his embattled country.

News: There is little indication Europe is winning the battle against poverty

Period of ‘prolonged weakness’ for UK

BY Richard Summerfield

Since the UK voted in June to break away from the European Union, the country’s economy has been surprisingly resilient. That durability has made a mockery of the many apocalyptic predictions around Brexit which preceded the vote. Although sterling has tumbled in recent weeks, dropping under $1.21, the UK’s economy has been relatively trouble-free since the summer vote. Indeed, according to the 'EY ITEM Club Autumn Forecast' released this week, the UK’s economy is still expected to grow by 1.9 percent this year, driven by strong consumer spending, which is up by 2.5 percent, and very low inflation of 0.8 percent.

Yet despite of this positive outlook, the report claims that the UK is set for a period of ‘prolonged weakness’, thanks, in part to rapidly increasing inflation which is expected to reach 2.6 percent in 2017, before easing back to 1.8 percent in 2018. Consumer spending, too, is expected to slow to 0.5 percent in 2017 and 0.9 percent in 2018.

Uncertainty surrounding the nature of the UK’s future relationship with the EU is also likely to adversely affect corporate confidence. EY expects business investment to decline by more than 2 percent in 2017, after a drop of 1.5 in 2016.

Peter Spencer, chief economic advisor to the EY ITEM Club, comments: “So far it might look like the economy is taking Brexit in its stride, but this picture is deceptive. Sterling’s shaky performance this month provides a timely reminder that challenges lie ahead. As inflation returns over the winter it will squeeze household incomes and spending. The pressure on consumers and the cautious approach to spending by businesses mean that the UK is facing a period of relatively low growth.”

Though EY’s prediction is worrying, there is a silver lining: the pound’s weakened position is great news for the country’s exporters. Exports are likely to jump 4.5 percent in 2017 and 5.6 percent in 2018, according to the report. The resiliency of the export space is contingent, however, on the nature of the UK’s future relationship with the EU. Given that 45 percent of the country’s exports are to the EU, a ‘hard Brexit’ may spell trouble for the UK’s export industry.

Report: EY ITEM Club Autumn Forecast

Digital revolution underway in Africa, claims new report

BY Fraser Tennant

Africa is in the midst of a digital revolution with growing affordability, accessibility and untapped demand driving advances across the continent, according to a new PwC report released this week.

The report – ‘Disrupting Africa: Riding the wave of the digital revolution’ – highlights a number of ways in which businesses, disruptors and policymakers can embrace new technology, while providing the infrastructure and capacity needed to ensure digital disruption is genuinely transformational in realising the continent’s economic potential.

PwC also notes that making products and services easier to access will unlock technology for Africa’s ‘global emerging middle’ market (characterised as "sitting just below the conventional middle class in income terms, but with aspirations for quality, high performing products that are in sync with higher segments") of more than two billion consumers.

PwC estimates that this emerging middle market will make up $6 trillion of the global market by 2021.

However, although the report states that digital disruption should support economic growth in Africa, this assertion comes with a caveat: that the reach and benefits of growth need to be more evenly spread across the continent.

“Technological disruption is transforming markets and societies across Africa in ways that wouldn’t have been possible even five years ago,” said Joel Segal, chair of PwC’s Africa business group. “This opens up huge and largely untapped commercial potential for domestic and international businesses. From the demographic dividend of a young and rapidly expanding population, to the fastest growing middle class of any continent – Africa has the potential to become a new powerhouse of production and consumption in the twenty first century, just as Asia was able to do in the late twentieth century.”

Moreover, asserts the report, businesses and policymakers can utilise technological advances to break down physical barriers, improving local knowledge, infrastructure and access remote communities. One example of this is the development of surveyor drones to help clients monitor infrastructure, manage construction sites and carry out insurance assessments.

“By broadening their outlook, businesses can dramatically increase their pool of potential customers, as well as giving a large proportion of Africa’s population access to products and services that would have been beyond their reach before," concludes Mr Segal.

Report: Disrupting Africa: Riding the wave of the digital revolution

PM Tsipras seeks “positive completion” of Greece bailout programme

BY Fraser Tennant

Greek prime minister Alexis Tsipras has called for the completion of a review of his country’s bailout programme so that the nation can begin the major task of restoring its struggling economy.  

Mr Tsipras’s call, made during a visit to Thessaloniki where he set out the economic priorities of the Syriza government, followed hot on the heels of a second review of Greece’s bailout programme on 9 September, which found that the Greek government needs to do more to release €2.8bn of funding ($3.1bn).

Specifically, eurozone ministers observed that requested Greek economic reforms had failed to materialise, announcing that of the 15 requirements laid down by EU officials last year as a prerequisite for the receipt of financial aid, only 2 of the 15 conditions had thus far been fulfilled by the Greek government.  

Eurozone finance ministers had stated that all 15 of the conditions are required to be met before Greece can be considered in the frame for debt relief talks – something prime minister Tsipras sees as essential. And despite the failure to meet the requirements that would unlock the tranche of funding, Greek finance minister Euclid Tsakalotos has urged his EU counterparts to reach a decision on short-term and medium-term debt relief for Greece by the end of the year.  

Recognising that debt relief is a crucial issue not only for Greece but for Europe and the entire eurozone, and one that affects big markets and economies such as Italy, France and Spain, Dimitris Papadimoulis, vice president of the European Parliament and head of the Syriza party delegation, said: “From the creditors’ side, mid and long-term measures of debt relief have to be concrete, based on what was agreed on May 2016 [the first tranche of funding] with the so-called 'roadmap' on the Greek public debt – the conclusion of specific measures by the end of December 2016.

“In the same context, it is vital for the creditors to acknowledge the need for realistic primary surpluses after 2019, meaning 2.5 percent for 2019 and 2 percent for 2020. Lowering primary surplus targets can facilitate and improve government’s economic policy mix, reach sustainable levels of growth and ameliorate burden-sharing of taxes among the social groups.”   

Overall, the second review of Greece’s bailout programme sent a clear message that it needs to be completed as soon as possible so that enough time is left for the Greek government to implement further reforms, oversee a steady return to growth, combat unemployment and reinstate social justice in all levels of public life.

On a positive note, prime minister Tsipras told his audience in Thessaloniki that Greece was “turning the corner” and that despite creditors making things more difficult, the country would see economic growth of 2.7 percent in 2017.

News: Greece’s Tsipras Calls for Prompt Completion of Bailout Review

Infrastructure investment boosts global economies claims new report

BY Fraser Tennant

A large-scale investment in infrastructure is the answer to the stumbling economic growth rates in many large economies, according to PwC’s new ‘Global Economy Watch’ report.

This stumbling growth or “sizable negative output gaps” identified by PwC provides a snapshot of the amount of spare capacity in an economy by estimating how close it operates to its potential level of output. Moreover, of the G7 group of countries, only the UK and Germany are anywhere near to closing the gap, while Italy is furthest adrift, reveals PwC.

“We don’t expect this to change soon, since our main scenario sees global growth of around 2.5 to 3 percent this year, the fifth year of below trend growth measured in market exchange rate terms," confirms Richard Boxshall, a senior economist at PwC. “The UK saw growth slow to a slightly-below-trend rate of 0.4 percent in the first three months of 2016, while the US grew at a lethargic rate of 0.1 percent quarter-on-quarter.

The answer, claims PwC, is to boost growth rates by investing in infrastructure – a strategy that the professional services firm claims would boost aggregate demand through increased construction activity and employment in the short-term and increase the potential supply capacity of an economy in the long-term.

To this end, PwC has set out four key investment principles for policymakers to utilise when deciding where to invest: (i) ensure it meets a need, identifying current and future needs, supplementing the base case analysis with a range of scenarios including optimistic and pessimistic cases; (ii) ensure consistency with other objectives, including social and environmental as well as economic goals.; (iii) ensure the numbers add up, as governments with a relatively low net debt position and healthy public finances (e.g., Germany and Canada) can boost aggregate demand/long-term supply capacity via infrastructure-led programmes; and (iv) ensure it will benefit the wider economy, factoring in both the long-term effects as well as the direct and indirect impacts.

“This type of investment is once again being touted as the key to unlock our low growth environment – but the effectiveness of this policy will ultimately depend on how many shovel-ready projects in different economies meet the principles we’ve outlined," concludes Mr Boxshall.

PwC’s Global Economy Watch is a monthly publication which examines the trends and issues that are affecting the global economy, detailing the latest economic projections for the world’s leading economies.

Report: Global Economy Watch