IN MY youth, a general election was signalled by a consumer boom, much as spring is heralded by daffodils. Not that anyone would accuse Chancellor George Osborne of stoking the surge in UK consumer borrowing, now galumphing at an annualised 8.3 per cent even as manufacturing output and investment slide.
The fact that economic fundamentals remain weak will not bother an Osborne in election mode. Consumers are using credit to buy big-ticket household items which are largely imported. That can only add to the UK’s dizzying current account deficit – now running at 6 per cent of GDP. That’s real foreign money we have to borrow or attract as capital investment – money that will run a mile if there is a hung Parliament and Nigel Farage gets his European Union referendum.
I expect nothing will upset the consumer apple cart before May – unless the US Fed raises interest rates. The surging US economy has used up a lot of spare capacity and American bond markets are pricing in a rate rise. The US is still a relatively closed economy and might shrug off a modest rise in interest rates. I’m not sure the same is true of the UK, which would have to reciprocate. Fingers crossed that Janet Yellen keeps money loose.
Is China’s thirst for oil imports truly sated?
Is THERE anything sensible we can say about the direction of oil prices in 2015, the Year of the Sheep in China?
Analysts at Société Générale calculate that Chinese oil thirst was responsible for lifting the price of crude from $20 a barrel to over $100 over the past quarter century. But if Chinese oil demand is reaching a climacteric then all bets are off.
China’s love affair with the car has already produced terminal gridlock. Inefficient, state-owned industries, who guzzle energy at any price, are now leaking red ink in copious amounts. Result: growth in China’s oil demand, though still positive, is well below forecast. Amazingly, this development made China a net oil exporter at the end of 2014, adding to the world glut.
Some analysts anticipate China’s appetite for oil could return to “normal”, at least for 2015, which might put a much-needed floor on the global price. Reason: emerging Asia is slated to be the fastest-growing part of the world economy in 2015 and China exports to its neighbours. Others suggest the latest five-year plan, due this year, will shift further away from industrial investment to consumption, meaning Chinese oil demand is already at a peak. Choose your fortune cookie.
Renewable energy firms may struggle in 2015
Butterfly wings flapping in China will affect Scotland. Given China’s heavy investment in renewable technology, falling oil prices threaten corporate casualties.
China’s big wind turbine industry could be tempted to export below cost to generate revenues. What prospect for Scottish domestic offshore wind farm suppliers then?
2014 was not a good year for Scottish hi-tech prospects in renewables. It saw the corporate death of Pelamis, the innovative Leith-based wave energy firm whose sausage-like machines were always photogenic. The Scottish Government came in for unfounded criticism for not keeping Pelamis alive, though Highland and Islands Enterprise is to acquire the company’s assets. The truth is that Scotland has spread its investment in competing renewable technologies too wide relative to domestic resources. Cheap oil will compound that problem.
SUBSCRIBE TO THE SCOTSMAN’S BUSINESS BRIEFING