MAGGIE PAGANO: Defying the doomsayers

The first day of trading in 2023 got off to a flying start. 

The FTSE 100 bounced up 1.4 per cent and European shares were at their highest level for two weeks on hopes the global economic outlook is not quite as ghastly as the doomsayers have been predicting.

Traders are praying once again that the Federal Reserve will start slowing down its interest rate hikes.

They will be scrutinising the minutes of the Fed’s December meeting, which are to be released today, for clues to which way –and how much – the next move will be.

The more cheerful mood was surprising considering the dire warnings at the weekend from the IMF boss, Kristalina Georgieva, who forecast in a US TV interview that the ‘new year was going to be tougher than the year we leave behind’.

Can it really be any worse than last year, a year which saw all Wall Street’s main indexes end with their biggest annual losses since 2008, the fastest and most aggressive pace of rate hikes since the 1980s and roaring inflation across the world?

Well, yes according to Georgieva, who predicts a third of the world economy will be in recession this year and that hundreds of millions of people will suffer an even worse cost of living squeeze. 

Yet investors and traders don’t seem to have taken much notice of the IMF boss, who, like her predecessors, is always more morose than she needs to be. And, of course, the IMF often turns out to be spectacularly wrong.

But are the financial markets right in being cautiously optimistic?

While the short-term outlook looks horrendous, with the Russian invasion of Ukraine showing no signs of ending any time soon, and China reeling from its Covid policies, some of the pressures on energy and commodity prices are now easing. 

Which in turn could lead to a softening of monetary policy as we head into recession – that may yet prove to be milder than the more extreme forecasts. 

The latest drop in inflation figures from Germany for December bears this out. Inflation fell to 9.6 per cent from 11.3 per cent in November, which in turn was down on October.

While the yearly rate was still at a record high of 7.9 per cent, this monthly drop is a positive sign that energy and food prices are falling across the eurozone as well as in the UK.

But these are early days. As the latest purchasing manager’s index showed, our manufacturing industry ended last year with the lowest output in more than two years as factories suffered from weak exports and job losses. 

Manufacturing contributes 10 per cent to GDP so this is terrible news for the sector, which blames energy prices, customs delays and post-Brexit red tape for the problems.

Retailers are suffering too. Fortnum & Mason was unable to send a Christmas hamper as a gift to a German customer because of red-tape.

This is a ludicrous state of affairs. It is all very well for Rishi Sunak and Jeremy Hunt to play the long game, to hope that by being boring everything calms down. It won’t.

They need to fix the strikes and improve our trade deal with the EU to help exporters. 

They should look again at the tax rises coming into effect in April aimed at the squeezed middle-income taxpayers, as well as the whopping 6 percentage point hike in corporation tax for companies, if they want to make this year better than the last one.

World Cup winners

It was the World Cup that won it for Aldi. Sales of crisps and nuts ahead of the final between Argentina and France on the Sunday before Christmas soared by more than 40 per cent as viewers stayed home, glued to their TVs.

Along with higher sales of fresh foods – and that heated dressing gown that you didn’t know you needed – Aldi crossed the £1.4billion mark for sales in December for the first time. 

The German discounter – and rival Lidl – look unstoppable. Since the 2008 crash, their combined market share has rocketed from 4.4 per cent to 16.4 per cent today. 

They have a long way to go to catch up with Tesco and Sainsbury’s, but even they are sacrificing margins to keep up sales.

If the German duo can keep prices down, they have only one way to go.

Cold comfort

All our local shops had sold out. It was the one-hit wonder of Christmas. I have heard of people driving around towns to track it down. 

Sadly, the search was not for new gimmicks or games for the holidays but for Lemsip, the cold and flu remedy.

Stocks of the medicine made by Reckitt Benckiser may be running low as the latest bug keeps on spreading. But no wonder the shares are up. Another defensive stock.