Conservative government
in Canada.
The silver lining to all this gloom is
that there is nowmore money in consumers’
pockets than there has been for years, and
pretty soon they will begin to spend it.
Demand has long been depressed by the
squeeze on middle-class incomes, but
now there is a good chance it will return.
Increased sales will prompt increased
investment and a further boost to productivity
and incomes – a virtuous circle leading to
a further round of economic growth.
Already we are seeing signs of a pickup
in the eurozone, spurred by cheaper oil,
and the US consumer is also beginning to
respond.We live in an uncertain world; but,
provided there are no further unanticipated
shocks, it looks like the turn of the world’s
developed economies to have some time in
the sun.
Getty Images
Balance sheet
A slowdown in China’s use of raw
materials has caused short-term pain in some industries,
but could pay dividends for the world’s consumers.
ANALYSIS
at the end of the KoreanWar, and in the
1980s with the normalisation following the
Iranian revolution. Such price drops are
effectively big shifts in purchasing power from
producers to consumers. In a rational world,
people in those countries which are big
importers of commodities should be hanging
out the bunting to celebrate their good fortune.
Cheaper oil makes everything else cheaper
too, from the fertiliser that goes on the fields
to grow our food, to the packaging that wraps
our purchases in the shops, to the cost of
filling up the family car. It amounts to a
tax cut on a scale that no government itself
could ever afford.And it gives the Bank of
England more leeway by reducing the
inflationary pressures which normally come
with expansion.
But the problem is that this does not happen
overnight, or even in the first fewmonths after
a significant fall.We react much more quickly
to pain than we do to gain. If something bad
happens we try to deal with it immediately; if
something good happens we store it away to
see if it’s a one-off or permanent. So while we
COMMODITY PRICES
COMMODITIES PRICES
(PRICE DROP BETWEEN DEC 2014-DEC 2015)
-29.35%
1
1
/, Dec 15
2
, Dec 15
COPPER
-34.66%
2
IRON ORE
-39.59%
1
OIL (LIGHT CRUDE)
-24.27%
2
ZINC
-12.11%
1
GOLD
get the downside of a price shift immediately;
the upside takes time to come through.
In the business world, the collapse in
commodity prices has triggered closures and
disposals of mines, as well as a freeze on
development. In oil, new exploration has
been slashed, development plans shelved
and tens of thousands of people laid off.
Don’t expect them to be celebrating low
oil prices inAberdeen, where unemployment
is soaring, or lowmetals prices in Redcar,
where steel production has come to a halt.
The bankruptcies in the NorthAmerican shale
and fracking industry have been painful and
played a large part in bringing down the
THE INVESTOR
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