Richard North, 21/02/2019  

It is extremely rare these days that I'm ever on the same page as the Telegraph, but a recent article offers a headline to a piece which seems to be more than the usual polemics.

"More factories could close as world enters 'industrial recession', economists warn", the headline says, with the text conveying a warning from "economists" that Honda's decision to shut its Swindon plant could be the start of a wave of factory closures across much of the world as an "industrial recession" takes hold.

Slumping demand for goods from cars to chemicals, industrial tools and metalwork, we are told, threatens to turn into a more serious slump across the manufacturing sector. It has been exacerbated by the US-China trade war, forcing companies to rethink the best locations for their factories.

If this is alarmism, though, it is not confined to the Telegraph. In The Times, we see the headline, "Credit markets fearful of impending global recession". Its report tells us that almost a third of European credit investors fear that the global economy is heading for recession, with the source identified as a client survey carried out by Bank of America Merrill Lynch.

We learn that investors' biggest concern in February was a "global recession", with 33 percent of high yield investors and 28 percent of high grade investors singling out the threat from 18 options. In the last survey, in December, it barely registered. Only three times in the past four years of the two-monthly survey has a single concern been more dominant.

The paper cites Barnaby Martin, credit strategist at BAML. He says, "You can see why there was this pivot", adding: "So many data points have plunged recently. Dutch industrial production, German industrial production, French industrial production, Korean exports have fallen materially year on year. With China doing a lot of stimulus, sceptics also worry that China's growth is much worse than we think".

Picking up on the theme from my piece yesterday, we can also see Business Insider, which headlines a piece: "The failing automobile industry is pushing us toward a global recession".

This relies on two economists at HSBC who state that the world is cooling off its love affair with cars, and "that is a factor pushing the global economy toward recession". To make their point, they have produced a chart comparing new car registrations to retail sales in the US. The US economy has been doing well, and shoppers have kept up their retail demand, but car sales are not keeping pace.

According to these two economists, Janet Henry and James Pomeroy, car demand is in decline due to a greater focus on environmental policies, increased urbanisation and investment in alternatives – including on-demand cars or public transport. They are finding that car registrations in total are down as new sales have not kept up with cars being "taken out".

Whatever the actuality, the point is that car sales globally are under pressure, and it is not just Brexit-stricken Japanese manufacturers which are taking a hit. Last November, General Motors announced that it was planning to halt production at five of its factories in North America, cutting more than 14,000 jobs, and closing three foreign plants by the end of 2019.

In the same month, Vauxhall in the UK announced a minor restructuring, but then in December, Ford announced an $11 billion restructuring plan which was to be centred on Europe. It is expected that Europe will suffer up to 25,000 job losses from the 54,000 employees working in the region's 24 manufacturing facilities.

The prospect of an auto industry recession was flagged up by Bloomberg in the same month as the Ford announcement. It recorded a fall in worldwide light-vehicle output of 2.9 percent in the third quarter of 2018 and was predicting a decline of about four percent in the fourth quarter.

Press reports last month were declaring that the US industry was already in recession, with the Financial Post leading with the headline, "Sorry Detroit, the next North American car recession has already started".

Interestingly the article reported that buyers had made a mass exodus out of classic family cars and into sport utility vehicles. Familiar sedan models such as the Honda Accord and the Ford Fusion made up a record low 30 percent of US sales in 2018, and things were set to get worse.

Crucially, passenger-car body style cars were set to sink to 21.5 percent of the US market by 2025, leaving manufacturers with excess factory capacity that can turn out about three million more vehicles than buyers want. And overcapacity was precisely what spurred losses the last time a recession wracked the industry, the Post said.

With multiple news sources also reporting an economic slowdown in China, and claims that Germany is already in a technical recession, there are far too many indications of growing turmoil across the globe for local perturbations in the UK to be put down simply as Brexit effects.

There is far more going on in the economy than just Brexit and, while its impact may well be damaging to the UK, this isn't the only thing which has the potential to do harm. We must begin to get used to the idea that Brexit is coinciding with the onset of a global recession, partially obscured in the UK by the focus on leaving the European Union.

With that, it must be conceded that not every bit of bad economic news will be Brexit-related and, as we see with Honda, Brexit may be only one of many multi-factorial issues, and not necessarily the most important. In certain cases, even where there is a Brexit effect, it could still be that certain events could happen anyway. Brexit may simply have brought them on earlier, or magnified the early effects.

Recognising this changes the context of the Brexit debate. Few would disagree that there was never a good time for a no-deal Brexit, but that applies in spades when we could be on the verge of a global recession. What was already important to avoid now becomes a matter of a vital national interest.

What we also need to do is think hard about whether the many economic events that occur over the next few months are necessarily, directly or exclusively a result of Brexit. There are going to be any number of such events and their analysis and evaluation are going to tax the skills of even seasoned commentators.

For all that, though, there is one immediate thing about which there can be no doubt. It is being reported that Fitch Ratings is considering whether to downgrade the UK's AA debt rating - and that is most definitely Brexit-related.

The Agency is concerned over the growing uncertainty, and believes that a no-deal would lead to "substantial disruption" to UK economic and trade prospects, at least in the near term. Fitch also said it may lower its AA rating on the Bank of England if it cuts the UK's sovereign rating.

This is understandable given Mrs May's lacklustre performance and the incompetence of her administration. Even now, as she has travelled to Brussels on a futile errand, she has lost control over her agenda in parliament while the established political parties are splintering in confusion and disarray.

In the last few weeks before we are scheduled to leave the EU, the prime minister has almost run out of opportunities to salvage a deteriorating situation and she shows no signs of being able to manage an orderly Brexit.

As Aviva, Britain's second largest insurer, has been given approval by the High Court to transfer around £9 billion in assets to a new Irish company and NatWest, part of Royal Bank of Scotland, is due to ask a court in Edinburgh to approve its application to move £6 billion in assets and £7 billion in liabilities from Britain to its Dutch hub, the wrong moves could make an incipient recession irrelevant to the UK. The damage could already have been done before it arrives.

Either way, we look to be in for a rough time but, for the moment, Mrs May gets to decide whether we suffer now or later, and then not so much. For her, and us, it is a matter of timing.

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