‘Risks still abound, but the time is coming when we can stop looking over our shoulders quite so much’

UP until the US Government partially, but significantly, shut down last week, the past few months had generally been very good for the developed world’s stock markets, which were riding on the back of a steadily improving global economy.

Even Europe, previously plagued by an 18-month recession, is emerging from its darkest period.

A recovering Europe, and to a similar extent a recovering UK, are welcome positives at a time when Asia and the emerging markets are slowing.

Recent figures showed that German business confidence is edging higher and expectations for the next six months are optimistic.

The feeling is that Eurozone GDP, having grown in the second quarter, may be on track for year-on-year gains by the end of the year.

To give further uplift to the continent, the European Central Bank (ECB) president, Mario Draghi, has once again pledged to keep monetary policy loose and said there was the potential for further stimulus measures if required.

The ECB is committed to keeping market interest rates low with the aim of stimulating the banking system and could be willing to offer banks more long-term loans.

The German business confidence figure follows the publication of earlier data indicating that the business activity across the Eurozone grew at its fastest pace in more than two years last month.

That business activity was bolstered by a stronger-thanexpected services sector, which helped the composite measure to beat expectations.

Our own domestic service sector is not doing so badly either.

Last week, it was revealed that the Purchasing Managers’ Index for services came in at 60.3 for last month. As many of you may wonder what that means, anything above 50 is expansion.

As the services sector accounts for about three quarters of UK economic activity, it stands to reason that if the sector is doing well, we will have some element of growth.

That is all well and good, but in the North-East we need to feel that we are in some way also benefiting from this.

One study estimates that the business services sector in the region is responsible for the employment of just under 200,000 people – very roughly about ten per cent of the total population – and contributes more than £7bn of economic activity each year.

While I am sure that we are less dependent on services than other areas, for instance the South-East, this is still a significant chunk of our output as a region.

Importantly, this news follows hot on the heels of optimistic surveys of both the manufacturing and construction sectors. Both are more traditionally integral to our economic health, and while they came off six-year highs, they are still very much in expansionary territory.

My own summation of the current state of the recovery is that it is somewhere in between nascent and entrenched.

Nas-trenched let us call it.

But the general flow of news, at least on this side of the pond, is becoming more and more positive.

By no means are we booming, far from it indeed, and risks abound as ever, but I do get the sense that the time is coming where we can stop looking over our shoulders quite so much.

  • Nick Williams is an assistant director of Brewin Dolphin, and can be contacted on 0845-213-1340.

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