Many primary commodity prices have fallen during the recession, but have recovered somewhat as the recession has bottomed out and hopes of a recovery have grown. So what will happen to commodity prices over the next few months and beyond, and what will determine the size of the price changes? The following linked articles look at these questions.
Commodity prices set to rise further, Roubini says Telegraph (3/8/09)
Have oil prices peaked for 2009? Hemscott (25/8/09)
What’s Ahead for Commodities BusinessWeek (23/8/09)
Gas Prices to Triple by Winter? (video) CNBC (25/8/09)
For commodity price data see:
Commodity Price Index Monthly Price Index Mundi
Questions
- What will determine the amount by which commodity prices rise (a) over the next twelve months; (b) the next three years?
- What will determine the size of any change in the Australian dollar from rising commodity prices?
- How does the holding of stocks affect (a) the size of commodity price changes; (b) the volatility of commodity price changes?
- Under what circumstances is speculation in commodity markets likely to (a) stabilise and (b) destabilise commodity prices?
- Explain why gas prices are likely to rise less than oil prices.
Preliminary figures for Quarter 2 UK GDP suggest that the UK economy has been declining faster than many had expected. Does this mean that the recession in the UK will be more prolonged, or can we expect a return to growth by the end of the year? How much does the outcome depend on policy decisions taken now and what should be done in terms of quantitative easing and other policy measures?
The answers to these questions depend to some extent on the reliability of the figures, which, after all, are only preliminary estimates. Past estimates have tended to understate the level of output and growth, but could the latest estimates understate the depth of the recession? The following articles look at the figures and their implications for policy. The two articles from The Economist look at the global context.
UK economy continues to contract BBC News (24/7/09)
Recession Britain Guardian (24/7/09)
‘Shocking’ GDP figures raise fears of long road to recovery Herald (25/7/09)
Hopes of early end to recession dashed Independent (25/7/09)
Treasury defiant on growth despite gloom over GDP Times Online (26/7/09)
UK GDP: What the economists say Guardian (24/7/09)
Hamish McRae: The GDP figures were profoundly gloomy … but they were wrong Independent (26/7/09)
The shrinking economy BBC News, Stephanomics (24/7/09)
Here comes August, the cruellest month of all Observer (26/7/09)
Rebalancing global growth: a long way to go Economist (23/7/09)
Unpredictable tides Economist (23/7/09)
Gross domestic product, Preliminary estimate, 2nd quarter 2009 Office for National Statistics, Statistical Bulletin (24/7/09)
Gross domestic product, Preliminary estimate, 4th quarter 2008 Office for National Statistics, Statistical Bulletin (24/7/09)
Questions
- What factors will determine whether the UK economy starts to growth again by the end of 2009?
- Plot the quarterly growth rate of GDP from 2007 Q1. Plot two lines on the same graph: one from the 2008 Q4 estimates and one from the 2009 Q2 estimates (see last two links above). How would you explain the discrepancies between the figures?
- What policy measures would you recommend to the Bank of England and the government in the light of the GDP estimates?
- ’The deeper and longer the recession, the more will potential (as well as actual) output fall.’ Do you agree with this statement? Explain your answer.
- Referring to the two Economist articles, what conditions are necessary for sustained long-term economic growth?
The global economy has been in a recession since December 2007, but have we now passed the worst of it? Whilst companies are still going bankrupt, unemployment is still rising, the housing market is still looking pretty gloomy and government debt surely can’t go up anymore, there are indications that we’ve reached the bottom of the recession. There are murmurs that the economy may start to recover towards of the end of the year.
But, of course, economics wouldn’t be economics if there wasn’t considerable disagreement. Many still believe that the worst is yet to come. According to the OECD, the recession is ‘near the bottom’. Yet, output in the UK is still set to decline by 4.3% in 2009, and by 2010 the budget deficit is predicted to have grown to 14%. Unemployment is at its highest since November 1996, but US consumer confidence is said to be rising and the pound is climbing. Read these articles and make up your mind about the state of the UK and global economy!!
Business and Consumer Surveys (After following link, click on chart) European Commission, Economic and Financial Affairs (29/6/09)
Pound climbs against euro as King sees signs recession easing Bloomberg, Lukanyo Mnyanda, Gavin Finch (20/6/09)
Bank says banking crisis easing BBC News (25/6/09)
First signs of optimism returning to some parts of financial services CBI PRess Release (29/6/09)
Darling and King agreed on tentative recovery Guardian, Ashley Seager (17/6/09)
Sharp contration for UK economy BBC News (30/6/09)
Housing market knocked by price falls Moneywise (22/6/09)
OECD says recession ‘near bottom’ BBC News, Steve Schifferes (24/6/09)
US Federal Reserve says recession is ‘easing’ Telegraph, James Quinn (24/6/09)
Public borrowing at record levels BBC News (18/6/09)
Leading index suggests recession easing UPI.com (18/6/09)
US consumer confidence up in June BBC News (26/6/09)
Blow for housing market as prices fall The Independent, David Prosser (22/6/09)
Most UK businesses freeze pay as recession bites, CBI says Telegraph, Peter Taylor (23/6/09)
Questions
- What are the typical characteristics of a recession? Do the current statistics of the four main macroeconomic objectives fit in with what economic theory tells us?
- Which policies would governments normally implement to get a economy into the expansionary/recovery phase of the business cycle and how do they work?
- Why is consumer confidence so key to economic recovery?
- What type of banking regulation is needed to prevent a similar crisis happening again?
- Movements in the housing market are often seen as indicators of the state of the economy. Why is this?
Setanta is a sports broadcaster that emerged from an Irish dance hall in West London in the 1990s. Since 2004 it has grown rapidly, acquiring major sporting rights and acting as something of a rival to Sky. However, Setanta has now gone into administration following the collapse of talks with a US investor, its failure to pay a number of sporting organisations and the loss of its English Premier League games. Having less than 60% of the annual subscribers needed, and competing against Sky, it is hardly surprising that this broadcaster has now exited the industry. But, what are the reasons behind this collapse? Marketing, advertising, pricing, the recession or dominance by its competitors? What will be the impact of this bankruptcy on its employees, the Pay TV market, sporting organisations and its customers?
Offer made for stake in Setanta BBC News (12/6/09)
Troubled sports channel stops broadcasting CBBC Newsround (24/6/09)
Setanta goes off air with loss of more than 200 jobs Guardian, James Robinson, Leigh Holmwood (23/6/09)
Blavatnik offers Setanta lifeline BBC News, Robert Peston (12/6/09)
Last-ditch effort to save Setanta BBC News (9/6/09)
Football’s minnows braced to take full force of Setanta collapse Guardian, Owen Gibson (24/6/09)
UFC: After Setanta divorce where now: Bravo, Viring, Channel 5 or Sky? Telegraph, Gareth Davies (23/6/09)
Setanta sports taken off air in Britain Times Online, Dan Sabbagh (23/6/09)
Questions
- How was Setanta able to expand so quickly? Is this part of the reason for its failure?
- Premium content, such as Premier League matches, is already dominated by BSkyB. What does the collapse of Setanta mean for the structure of the Pay TV market?
- What reasons could explain Setanta’s inability to attract sufficient subscribers? Is its collapse a consequence of the recession, or are there other factors? What are they?
- Who will lose out from Setanta’s bankruptcy? Think about all those connected with Setanta. What will happen to the Scottish Premier League, which has paid the SPL clubs out of its own pocket? Will it get this money back?
- Do you think there were any other options open in a bid to rescue Setanta? If Ofcom had stepped in to regulate the industry, would it have made a difference?
Many industries are struggling in the current climate and, in particular, car sales have been at an all time low. General Motors was the biggest car company in the world, but recently we have seen them becoming the biggest industrial bankruptcy, which will have consequences for many car manufacturers around the world. UK car sales were 25% lower in May 2009 than at the same time last year and Chrysler will sell most of their assets to Fiat when they form a strategic alliance in a bid to help them exit bankruptcy protection.
The troubles of the carmakers have passed up the production chain to automotive suppliers, component manufacturers and engineering firms, and down the chain to the dealerships at a time when consumer confidence has taken a knock. The following articles look at some of the recent developments in the car industry and consider their likely economic impact.
UK new car sales 25% lower in May BBC News (4/6/09)
Creditors cry foul at Chrysler precedent The Wall Street Journal, Ashby Jones, Mike Spector (13/6/09)
The decline and fall of General Motors The Economist (4/6/09)
GM pensioner’s fears for future BBC News (1/6/09)
Opel staff face wait for job news BBC News (2/6/09)
From biggest car maker to biggest bankruptcy BBC News (1/6/09)
GM sales executive lays out company’s direction Chicago Tribune, Bill Vidonic (14/6/09)
Chrysler and Fiat complete deal BBC News (10/6/09)
Fiat gambles on Chrysler turnaround Telegraph, Roland Gribben (1/6/09)
Obama taskforce faces Congress over car industry rescue Times Online, Christine Seib (10/6/09)
Has pledge of assistance revved up the car industry? EDP24, Paul Hill (10/6/09)
Questions
- What is a strategic alliance and how should it help Chrysler?
- What are some of the methods that governments have used to help stimulate the car industry? Consider their advantages and disadvantages.
- Think about the consequences beyond the car industry of the decline of General Motors. Who is likely to suffer? Will there be any winners?
- General Motors was established in 1908. How were they able to expand so quickly and what do you think are the main reasons for their current decline?
- The article in The Economist suggests that, despite the current problems in the car industry and the global recession, selling cars will never really be a problem. What do you think are the reasons for this?