Scalebacks in British business spending.

Worries about the eurozone and shaky prospects for the wider global economy have dented confidence among bosses of the UK’s biggest companies, according to a survey.

There is growing uncertainty among business leaders over the UK’s planned referendum on EU membership, with support for staying in the bloc waning significantly over the past six months.

Confidence back to 2012 levels

Almost a third of the 137 CFOs surveyed, or 30%, said they were less optimistic about the prospects for their companies compared with three months ago. That was up from 20% feeling more downbeat when asked six months earlier. Just 12% said they were more optimistic in the latest poll, down from 36% six months earlier.

As a result, risk appetite was also down and the pace of hiring and capital spending was likely to slow in coming months, said Deloitte’s chief economist Ian Stewart.

Growth prospects

Finance chiefs were broadly optimistic about the UK’s economic prospects in 2016 as well as for the US, the world’s largest economy. But despite stronger than expected growth in the euro area last year, CFOs remained pessimistic about prospects for the region. Levels of confidence about growth in the single currency bloc were lower than for emerging market economies.

The survey also signalled a drop in support among business leaders for the UK to remain in the EU ahead of a referendum on the issue.

Deloitte asked CFOs whether it was in the interests of British business for the UK to remain a member of the EU. In the latest survey, 62% agreed that continued membership was beneficial, down from 74% when the question was asked six months earlier. There was also an increase in the number of those saying that UK business would benefit from leaving, to 6% now compared with just 2% before.

Just over a quarter, or 28%, said their decision depended on the outcome of the prime minister’s renegotiation of UK membership, up from 23% six months earlier. The remaining 4% said they were uncertain of their position.

After almost seven years of interest rates being held at a record low of 0,5%, a potential increase from Bank of England policymakers in coming months represents yet another uncertainty for businesses as they enter 2016.

With low oil prices helping to keep inflation low, financial markets do not point to a rate rise until late 2016 or early 2017.

Does Brexit mean the beginning of the end of the EU?

Since the EU’s conception after World War II, the UK has stood on the sidelines: its attitude towards Brussels standoffish and, at times, downright hostile. From the Schengen project to the Euro, the island nation has negotiated numerous exceptions and opt-outs from joint European endeavours.

Initially the strongest opposition to the EU came from left-wingers. At a 1975 party conference, two thirds of Labour members, including current Labour leader Jeremy Corbyn, voted to leave. For them, the EEC was too cosy and too capitalist…a juggernaut that had rolled over Britain’s jobs, welfare state and sovereignty in the name of free trade.

However, those allegiances changed when Margaret Thatcher came to power. European integration was moving beyond economics and dipping its collective toe into the water of political and social issues. For the Iron Lady, Brussels had overstepped its remit.

Today, many of Thatcher’s Conservatives are calling for Britain to wrest back powers from Brussels, or leave the EU altogether. They claim most of Britain’s concerns can be dealt with more efficiently at home, and even believe a “Brexit” would reduce demands on the country’s social security system: despite the fact that most EU migrants living in the UK work, and therefore pay tax. Whatever the arguments for and against, a referendum on EU membership is now a certainty, and will likely take place in the summer of 2016.

How did we get here? It’s been a long time since Charles DeGaulle kept Britain out of the EU.  Britain has not joined the Euro and has articulated clear frustration and disappointment in EU leaders.  Now is perhaps the time to ask why the EU does not punish Poland for violating its rules?  Or to ask why pressure is not brought to bear on Romania and Hungary which are led by dictators?  Is it time to ask which nations can form an effective union and perhaps kick some members out?  Brexit’s exit would be self-inflicted.

Image by Marian Kaminsky

Will globalization resume as economies get back on track?

Timothy Taylor writes:  Have we reached “peak trade,” so that the the era of rising globalization has ended? Or is the leveling out of the world trade/world GDP ratio just a pause, before globalization starts growing again?

The answer is yes, for reasons that underlie the thrust to globalization.  Moving value cross international borders gets easier all the time.  Communications technology facilitates movement, and coordinates activities.  Direct buying of information-related goods is easy.

Soon consumers and firms will buy goods from all over the world and order goods and services casually from other countries.   Globalization

Iraq Exported over a billion barrels of oil in 2015

Iraq said it exported 1.097 billion barrels of oil in 2015, generating $49.079 billion from sales, according to the oil ministry.

It sold 99.7 million barrels of oil in December, generating $2.973 billion, after selling a record 100.9 million barrels in November, said oil ministry spokesman Asim Jihad. The country sold at an average price of $44.74 a barrel in 2015, Jihad said.

Iraq, with the world’s fifth-biggest oil reserves, needs to keep increasing crude output because lower oil prices have curbed government revenue. Oil prices have slumped in the past year as the Organization of Petroleum Exporting Countries defended market share against production in the U.S.

State of the Global Economy 2016   Five opinions

The world will face economic challenges on multiple fronts in 2016. As the U.S. Federal Reserve begins its monetary tightening, Europe is struggling to manage migrant and debt crises, China’s financial stability is in doubt, and emerging economies are increasingly fragile.

The global economy “could be doing much worse,” writes CFR Senior Fellow and Harvard economist Kenneth Rogoff. Low oil prices and weak currencies are keeping the European and Japanese economies afloat, but Rogoff warns of “a slowing Chinese economy, collapsing commodity prices, and the beginning of the U.S. Federal Reserve’s rate-hiking cycle.”

Emerging economies like Brazil, South Africa, Thailand, and Turkey, rather than China, will be the real sources of concern in 2016, argues U.C. Berkeley’s Barry Eichengreen. With their high levels of short-term debt, these countries are vulnerable to currency crisis, “potentially leading to economic collapse.”

Varun Sivaram thinks new investments announced at the Paris climate talks are reason for optimism in the energy sector. In particular, the $20 billion earmarked for clean energy research and development “could make it more likely for breakthrough technologies to emerge.”

In the United States, meanwhile, steady GDP and job growth has been constrained by weak productivity gains, writes American Enterprise Institute’s James Pethokoukis. Without increased productivity delivering higher living standards, the United States could face decades of “unhealthy economic populism.”

Europe continues to face the risk of debt crises, writes CFR’s Robert Kahn, but the most dangerous economic risk for the continent in 2016 is “a growing populist challenge from both the Left and Right,” which could create economic policy uncertainty and constrain policymakers.   Global Economy 2016