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UK bus and coach operator Stagecoach has said it is confident about future prospects, after demand for travel fell sharply in the pandemic.
Stagecoach reported this morning that revenues dropped by around a third in the year to May 1st, to £928.2m, while statutory pre-tax profits fell to £24.7m from £40.6m.
Stagecoach will not pay a dividend for the year, due to “continuing uncertainties caused by the impact of COVID-19”, but it does see signs of recovery.
Mileage at its regional bus services, for example, is now running at around 94% of pre-pandemic levels.
The company says:
We remain confident that there is a strong and positive future for public transport as we carefully follow the roadmap out of the pandemic. Passenger volumes are growing, with demand from fare-paying passengers so far recovering more strongly than demand from concessionary passengers.
We see good long-term prospects for the business and we are continuing to invest to support our long-term growth.
The global economy faces losing over $4 trillion of GDP in 2020 and 2021 due to the crash in tourism due to the coronavirus pandemic, according to a new report from UN agency UNCTAD released today.
UNCTAD estimates that international tourism and related sectors lost $2.4trn of activity in 2020, due to direct and indirect impacts of a steep drop in international tourist arrivals.
Developing countries suffered the largest reductions in tourist arrivals in 2020, estimated at between 60% and 80% – with North-East Asia, South-East Asia, Oceania, North Africa and South Asia worst hit.
UNCTAD warns that a similar loss could be incurred this year, as the recovery in tourism has been slower than expected.
The tourism sector’s recovery will largely depend on the uptake of COVID-19 vaccines globally, UNCTAD points out.
It calls for a renewed push to roll out vaccines globally, as the “asymmetric roll-out of vaccines” means that developing countries are suffering a deep blow from the fall in tourism.
UNCTAD acting Secretary-General Isabelle Durant said.
“The world needs a global vaccination effort that will protect workers, mitigate adverse social effects and make strategic decisions regarding tourism, taking potential structural changes into account,”
The report’s most pessimistic forecast shows a 75% fall in international tourist arrivals this year, based on the tourist reductions observed in 2020.
In this scenario, a drop in global tourist receipts of $948 billion causes a loss in real GDP of $2.4 trillion, a two-and-a-half-fold increase. This ratio varies greatly across countries, from onefold to threefold or fourfold.
But in the optimistic scenario, there is a 75% reduction of tourism in countries with low vaccination rates, and a 37% reduction in countries with relatively high vaccination rates, mostly developed countries and some smaller economies.
The report also warns that the fall in tourism has pushed up joblessness, causing an average 5.5% rise in unemployment of unskilled labour.
Labour accounts for around 30% of tourist services’ expenditure in both developed and developing economies. Entry barriers in the sector, which employs many women and young employees, are relatively low.
Eurozone inflation has dropped back to the European Central Bank’s target.
Consumer prices across the euro area rose by 1.9% per year, from 2.0% in May — back to the ECB’s goal of keeping inflation close to, but below 2%.
Core inflation, excluding food, energy costs, alcohol and tobacco, slipped to 0.9% from 1.0%.
Commodity price rises, supply chain bottle necks and a shortage of labour in hospitality and entertainment are all pushing inflation higher, points out Willem Sels, chief investment officer, Private Banking and Wealth Management, HSBC.
But while oil price inflation is starting to drop (as the slump early in the pandemic last year drops out of the calculation), Sels says it’s too early to declare victory over inflation.
We think eurozone inflation may rise a bit further, to reach 2.8% by the end of the year, after which it should start to come down. While oil and other commodities will become less of a driver for inflation this year, low inventories of industrial goods mean that goods price inflation will remain with us until companies have replenished their stock, which may take several months.
And in services, the current pricing pressure we are all experiencing when trying to book a staycation or visit our favourite restaurants will remain until the supply of labour in these sectors catches up with demand later in the year.
But as the ECB principally focuses on core inflation, which remains low, it is likely to leave interest rates at their current record lows for some time, calculating that the current rise in headline CPI is temporary.
Neil Birrell, Premier Miton chief investment officer and manager of Premier Miton Diversified Growth Fund, also sees the ECB will be watching inflation closely:
“CPI in the Eurozone came in as expected for June; fairly muted, as inflation in other major economies is gathering pace. However, there is a dampening impact in Europe from statistical factors.
There is no reason that inflation will not be a notable issue in Europe in the coming months, just as it is everywhere else, as the economy opens up and activity increases. The ECB will be keeping a close eye on it, along with all the other central banks.”
Unemployment in Germany has fallen this month, as its economy recovery gathers speed.
The number of people out of work fell by 38,000 in seasonally adjusted terms to 2.691 million, better than the 20,000 fall expected. The seasonally adjusted jobless rate remained at 5.9%.
In a further positive sign, the number of employees put on reduced working hours in job protection schemes, or Kurzarbeit, fell sharply in June.
Labour Office head Detlef Scheele explained.
“Companies are scaling back short-time work and are looking for new staff again.”
ING’s Carsten Brzeski points out that German firms are also experiencing supply problems:
Interestingly and according to media reports, short-time work schemes are no longer being used to exclusively tackle the fallout from the crisis but also as a result of increasing supply chain disruption, particularly in the German automotive and shipbuilding industry.
Brzeski is hopeful that “the worst seems to be over” for the German labour market.
Employment expectations in both the manufacturing and services sector have continued to improve and are approaching all-time highs quickly. With improving employment prospects and the expected strong rebound of the economy, the risk of bankruptcies and a potential second unemployment wave are decreasing.
In fact, as the economy is likely to return to its pre-crisis level before the end of the year, previous threats of surging unemployment once government support schemes end have become less frightening. In the short run, the lack of skilled workers in certain sectors could become a more pressing issue than any increase in unemployment.
Dixons Carphone’s pre-tax profits rose by 34% in the year to 1 May as it notched up almost £5bn in online sales of electrical goods including televisions, laptops and video game consoles to consumers stuck at home during the Covid-19 pandemic lockdowns.
The retailer, which owns the Currys PC World brand, said revenues from electrical goods ordered online more than doubled year on year to £4.7bn.
Online sales accounted for just over 45% of the company’s total annual revenues, which rose 2% to £10.3bn. Like-for-like sales of electrical goods were up 14% despite stores in the UK, Ireland, Norway, Denmark and Greece being shut for substantial periods.
The company’s adjusted pre-tax profits rose by 34% year on year to £156m, slightly ahead of analyst expectations.
Dixons Carphone said there was high growth in sales of computing products, especially Apple devices, as well as headphones. Sales of major domestic appliances were slower while shops were closed but the company said they had been encouraging since reopening.
Here’s some reaction to the news that the UK economy contracted slightly more than expected in the first quarter of 2021, while the household savings ratio was a near-record high.
Paul Dales of Capital Economics says the surge in household savings is an upside to economic recovery. It could be longer and fast than expected, if people spend this stock of excess savings:
The small downward revision to Q1 GDP growth probably won’t stop the economy from rising back to its pre-pandemic peak in the coming months.
And the larger-than-expected rebound in the household saving rate increases the potential for faster rises in GDP further ahead.
Martin Beck, senior economic advisor to the EY ITEM Club, says the economy has a solid base for growth [indeed, we already know GDP grew by a rapid 2.3% in April].
“First, the economy emerged from lockdown with a relatively solid base for growth. For sure, GDP fell 1.6% quarter-on-quarter – revised down slightly from the original estimate of a 1.5% decline – but even allowing for the boost to output in Q1 from Government spending on COVID-19 testing and vaccinations, the quarter’s contraction was a far cry from the 19.6% quarter-on-quarter fall in output during the first lockdown in Q2 2020.
“The second point of interest was the significant rise in the household savings ratio to 19.9%, up from 16.1% in Q4 2020. This compared with an average of 8.5% from 2010-19. Higher savings reflected a lockdown-related fall in spending, but incomes remaining flat thanks to private sector adaptation and government support. The elevated savings ratio reaffirms that households are emerging from the crisis with cash to fuel higher spending.
Suren Thiru, head of economics at the British Chambers of Commerce, points out that business investment is still sharply below its pre-Covid-19 levels:
Alastair George, chief investment strategist at Edison Group, points out that the economic recovery hinges on the success of the UK’s vaccination programme.
The data are a reminder of the damage lockdowns wreaked on the economy, even as the UK government provided extensive fiscal support. UK GDP was 8.8% below its pre-pandemic level, one of the worst performances of the G7. A significant proportion of the fiscal support appears to have boosted the household savings rate, which remained elevated at 19.9%.
Looking forward, current economic conditions are clearly much improved but later in the year there will be a fiscal headwind as the furlough scheme draws to a close. The outlook now hinges on the success of the UK’s vaccine program in keeping hospital admissions down to acceptable levels.”
The UK economy shrank slightly more than previously thought during the lockdown earlier this year, as families saved money at the second-fastest rate on record.
UK GDP shrank by 1.6% in January-March, updated data shows, compared with a previous estimate of a 1.5% contraction.
It means the UK economy was 8.8% lower than its pre-pandemic level.
The service sector drove the fall, with services GDP falling 2.1% in the quarter. It was led by education (the move to remote schooling hit output), wholesale and retail trade, and accommodation and food services industries (as shops and hospitality venues were closed).
The lockdown also drove the UK household saving ratio up to 19.9%, the second highest on record (after the second quarter of 2020), showing that families stashed away much more of their income than usual.
This was due to a sharp fall in spending due to the lockdown, while incomes held up well (with the furlough scheme keeping unemployment lower).
There was a 3.2% slump in household consumption in the quarter, while household gross disposable income rose by 0.1%.
The ONS says:
As a result of rising coronavirus (COVID-19) cases, various national lockdowns were introduced across the countries of the UK for most of Quarter 1. As a result, household’s final consumption expenditure fell as the opportunity for selected types of spending was restricted.
Spending in restaurants and hotels fell by 37.2% on the previous quarter while transport fell by 13.9% on the quarter.
Bank of England data yesterday showed that households deposited less into their bank and building society accounts in May than in recent months, suggesting that household savings are returning to more normal levels as people have more opportunity to spend again.
Here’s more on the GDP figures:
In the City, the FTSE 100 index has fallen to its lowest level in over a week – pulled down by miners and travel firms.
Jet engine maker and servicer Rolls-Royce (-2.5%), mining giants Glencore (-2.2%) and Anglo American (-2%), and British Airways parent company IAG (-2%) are leading the fallers.
The FTSE 100 is now down 47 points, or 0.65%, at 7040 points (its lowest since Monday 21st June) with housebuilders and banks also lower.
On the smaller FTSE 250, budget airline easyJet are down 1.3% while WH Smiths, which runs retail shops at airports and railway stations, have dipped 2%.
Travel stocks continue to be weighed down by the latest travel restrictions brought in by some European countries on UK tourists.
Miners are suffering from falling commodities prices – with the US dollar stronger, and the recent rise in Covid-19 cases in Asia-Pacific countries threatening their economic recovery from the pandemic.
Worryingly for manufacturers, the semiconductor shortage is unlikely to end soon.
Last month, IBM’s president warned that it could take two years to catch up with the backlog of orders caused by factory closures in the pandemic, and surging demand for electrical goods from consumers in lockdown.
Earlier this month, Fleet News warned that the UK’s fleet industry is facing longer lead times for new cars and vans as manufacturers struggle to cope with the global semiconductor shortage, saying:
Every car- and van-maker is being impacted by the computer chip crisis, with some delivery times for cars lengthening from three to six months, and many new vans not expected to be delivered until 2022.
Several car manufacturers have cut production this year; General Motors said this month it would restart several assembly lines that were paused due to chip shortages, while Volkswagen’s Mexico division is resuming production of three vehicle models after suspending output in May.
The 5.9% tumble in Japan’s factory output last month was much worse than expected, says Bloomberg, pointing out that analysts expected a 2.1% drop.
As well as semiconductor shortages denting car production, manufacturers of all kinds pulled back amid yet another round of restrictions to contain the coronavirus.
Yuki Masujima, Bloomberg economist, explains:
“The deeper-than-expected drop in Japan’s May industrial production reflected a hit from the extended state of emergency to contain the virus. Weaker domestic demand overwhelmed support from exports, which have remained strong.”
They also point out that:
- Output dropped almost across the board, falling in 13 out of 15 industry categories, with vehicle production dropping by nearly a fifth and accounting for about half of the overall decline.
- The sharp drop in auto production also signals that chip shortages may have finally started to squeeze Japan’s automakers after deft inventory management by Toyota in particular seemed to be helping minimize damage. Toyota’s total domestic output of about 274,000 units in May was down by more than 100,000 vehicles from two years earlier, before the pandemic hit.
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
The global shortage of semiconductors is hurting factory growth across Asia, and feeding through to delays in car deliveries into the UK.
Growth at China’s factories has fallen to a four-month low this month, new figures show, with supply shortages, supply chain problems and rising raw material costs all hitting manufacturers.
And in Japan, industrial output has posted the biggest monthly drop in a year, slumping 5.9% in May from the previous month, hit by declines in the manufacturing of cars and production machinery.
The fall was driven by a 19.4% drop in motor vehicle production, largely due to supply issues with semiconductor chips, the Ministry of Economy, Trade and Industry (METI) said.
A slowdown at Japan’s car industry will have a significant impact on its economy, as Reuters points out:
The [5.9%] contraction, which was the first drop in three months, was much weaker than a 2.4% fall forecast in a Reuters poll of economists. It followed a 2.9% gain in the previous month.
Manufacturers of intermediate goods, such as tires and electrical lighting of passenger cars, are taking a hit from declines in motor vehicle production.
China’s June official manufacturing Purchasing Manager’s Index (PMI), which tracks activity across the sector, dropped to 50.9 from 51.0 in May – nearer to the 50-point mark showing stagnation.
China’s National Bureau of Statistic senior statistician Zhao Qinghe warned that production was hit by “a tight supply of chips, coal and power, as well as equipment maintenance,” adding that:
“Factors such as chip shortages have adversely affected the development of the (automobile) industry,”
Covid-19 outbreaks at key ports in the major export province of Guangdong, and in neighbouring Shenzhen, also caused disruption.
The NBS also reported a slowdown in growth at China’s services companies (the services PMI fell from 55.2 to 53.5)
Firms have been warning for months that the shortage of semiconductors was hurting growth, and today’s data highlights the problem.
Jeffrey Halley, Senior Market Analyst, Asia Pacific, OANDA, explains:
Stories of Chinese consumers saving instead of spending have been circulating for a while now, and it seems to be showing up in the data. Logistics and chips are making their presence felt in manufacturing.
Chips and ships will be a problem for the world as a whole for some time to come, and it could be that the initial Northern hemisphere reopening spending frenzy has eased somewhat.
Carmakers are scrambling to get hold of semiconductors, competing against electronics and electrical goods makers – from TVs and mobile phones to cars and games consoles.
Pendragon, the UK car dealership group, has flagged this morning that supplies are likely to be hit in the second half of this year, with some orders already being delayed.
Pendragon told the City that:
There remains continued uncertainty as we move in to the second-half of FY21 with potential further disruption from Covid-19, an expected realignment of used vehicle margins and the risk of both new and used vehicle supply constraints.
Whilst the extent of the impact of the well-publicised semi-conductor chip shortage is not yet clear, it is becoming increasingly apparent there is likely to be some restriction of supply during the second-half of FY21, with vehicle order times already being extended.
- 8.55am BST: German unemployment for June
- 10am BST: Eurozone inflation reading for June
- Noon: Bank of England chief economist Andy Haldane speech at the Institute for Government on the changes in central banking over the last 30 years
- 1.15pm BST: ADP survey of US employment in June
- 3.30pm BST: IEA weekly oil inventory figures