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THE global economy is very unsettled and some chill winds blew across Cyprus last week.
With the temperatures we were experiencing almost any wind would have been welcomed – but these chill winds were ill winds, blowing no good for our economy, and our tourism industry in particular.
Airlines have added an extra 50,000 seats this summer. Hoteliers have added more beds and new hotels have been built. But weaker holiday bookings suggest tourist arrivals to Cyprus will be lower than in 2018. We are all ready to party, but the guests may not arrive.
Deputy Tourism Minister Savvas Perdios blamed the drop on the negative exchange rate of the Russian Rouble, the uncertainty caused by Brexit and problems with the German market.
He ignored the elephant in the room: the growing trade war between the USA and China and wider worries about global trade caused by President Trump’s protectionist policies. It has shaken everyone’s confidence – from the boardroom boss making billion-dollar investments to the parents planning family holidays.
And their reaction has been the same: tighten the purse-strings a little, be a bit more careful how you spend your money.
It shouldn’t be this way. June marks the tenth anniversary of the US economic expansion that began in 2009.
If it continues into July, it will surpass the 1991-2001 growth cycle and become the longest since 1854, which is as far back as economists have attempted to date such cycles.
It should be cause for celebration. But the risk of a downturn is rising, amplified by the heightened trade tensions. JPMorgan Chase & Co says the probability of one beginning in the second half of this year has risen to 40% from 25% in early May.
As if to emphasise the point, IHS Markit’s US Manufacturing Purchasing Managers’ Index fell in May to its lowest level since September 2009.
That lack of confidence was echoed in the UK which last week reported the worst drop in retail sales since 1995, when the figure first started being recorded.
The problem there is, primarily, Brexit. Theresa May has formally resigned as leader of Britain’s Conservatives and will step aside as prime minister when the party has concluded the laborious process of selecting her successor.
Boris Johnson is the early favourite and the prospect of this Brexiteer taking the helm, and perhaps pulling his country from the EU without a deal, is doing nothing to improve consumer sentiment.
Are there any good omens? Well, yes. The US has reached a deal with Mexico which will prevent a tariff war across the Rio Grande and gives hope that other trade disputes can be settled.
Moreover, the American economy is still expanding. The IMF has upgraded its forecast for US growth this year to 2.6 per cent, three tenths higher than it predicted in April, and the US trade deficit has been reduced, which might persuade Mr Trump to cool the Twitter rhetoric a bit.
Also, some central banks are moving to quell the gathering storm. Australia cut interest rates last week for the first time in three years and India followed its example.
The European Central Bank pledged to keep its interest rates at their current, record-low level, at least until the first half of 2020 and said it will let banks borrow at just 10 basis points above its -0.4% deposit rate, provided they meet the ECB's lending benchmarks.
How do individuals fare in this time of uncertainty? They are worried, obviously, but there is increasing awareness of the dangers, and that is half the battle.
Prudent investors, like wise governments, are taking stock and taking advice.
My company, the Woodbrook Group, has seen a noticeable increase in clients wishing to ensure that their money is invested in a way that will secure their future.
The Woodbrook Group is an international firm of financial advisers with its headquarters in Cyprus. We are not owned by any financial institution or life insurance company and can offer you unbiased and impartial advice to help you understand your options and how to address your income needs.
We can’t solve the world’s problems, but we have the experience and know-how to help our clients help themselves. In troubled times, that is what we owe to ourselves and our families.
