The dominant theme of the summer is continuing into August – runaway wars and out of control wildfires – but attention is now starting to turn to the cost of all this.
Economists at the Dutch bank Triodos have estimated that this year’s heatwaves could take €180 billion off the EU’s Gross Domestic Product. This is due to a number of factors, including low water levels in rivers that have hit commercial freight routes and forced nuclear power plants to shut down, lost productivity through property destruction and tourists seeking cooler climes.
There was a brief glimmer of hope for a resolution around the conflict in Iran with news that Iran and Oman were negotiating over shipping routes through the Strait of Hormuz. The most likely outcome still remains that the Gulf states will agree that Iran – and presumably Oman too – can earn some sort of fee for ships to pass through the Strait though this may be disguised as an environmental charge rather than a toll to save face. The American president Donald Trump appears to be desperate to claim some sort of victory, with wild threats to bomb Oman and declare the Strait of Hormuz as a US territory, while the Iranians seem willing to delay any resolution until nearer the US mid-term elections to cause him maximum embarrassment.
Nonetheless, China appears to be the main beneficiary of this conflict, which has forced many users to consider switching to renewable energy. China is decades ahead of every other nation, both in terms of processing of rare earth minerals and IP for batteries and other related elements. It’s worth remembering every time a politician talks about more drilling or mining that fossil fuels are yesterday’s energy source. Electricity generated through renewable sources is tomorrow’s energy. There is no excuse for being too short-sighted to see this today.
That said, the British government is still equivocating over drilling for more oil in the North Sea off the Scottish coast. In the past this argument has been about balancing the short term need to protect local jobs against a vague long term concern over climate change. But this year’s droughts have hit farm production while wild fires are burning in several regions of the UK.
This is the context for the most recent figures that show the UK economy grew slightly in Q2 – April to June – with GDP up 0.4 percent, which is lower than the 0.6 percent for Q1. However, much of this growth is down to the summer sunshine combined with sporting events that boosted the hospitality sector. House prices, which give a good indication of consumer confidence in the economy, have fallen back to 2018 levels. Economists are warning that the continuing conflict in the Middle East is likely to lead to higher inflation and higher energy costs in the second half of the year.
That leads to the obvious question – how much economic pain can Trump weather in the run-up to the US mid-term elections. Data from the American Commerce Department shows that the US slowed down in July, with GDP growing at 1.5 percent in the second quarter, down from 2.1 percent in the first three months of the year. The US economy is heavily dependent on consumer spending, which accounts for around two-thirds of the economic activity and has been growing despite inflation at around 3.5 percent. So the current weakness in growth is down to decreases in government spending, investment and exports. This has been mirrored by a slowdown in job creation in the US according to figures from the Bureau of Labor Statistics.
Across the border, Statistics Canada has reported that inflation rose to 3 percent annually in July, with the Consumer Price index up by 5 percent for the month, largely due to increased fuel prices from the US/ Iran conflict with gasoline up 25.7 percent in July.
Meanwhile Japan’s Ministry of Finance and the US Treasury had earlier worked together to buy billions of Yen to halt a slide in the value of the Yen and subsequent sell-off of Japanese government bonds that could have had a wider impact on the global economy. However, the impact appears to have been relatively short lived, with the value of the Yen falling further less than a week after this intervention. The repercussions may last longer, since the US Treasury funded this action by selling Euros rather than dollars. That caught the European Central Bank by surprise, and may signal a new approach in how the US manages its currency strategies with the concern that less coordination between central banks might lead to more volatility in the future.
The Yen generally has a weaker value than other currencies, which is mainly linked to the Bank of Japan setting lower interest rates than other central banks, currently at 1 percent. This is to cope with a structural weakness in the Japanese economy, namely a very high national debt and an over-reliance on imported energy. For comparison, the US Federal Reserve operates a benchmark range of 3.5 to 3.75 percent while the Bank of England’s interest rate is 3.75 percent. On the back of the weaker yen, Toyota, the world’s largest car manufacturer, has increased its profit outlook and is to spend ¥1 trillion to buy back its own shares.
The Truth Social platform, which is owned by the Trump Media and Technology Group, is charging around $60,000 to $100,000 for faster access to posts from the social media site’s most influential accounts. This new service, Truth API, is supposedly aimed at investors looking for early access to sensitive market information, and has already signed up several high frequency trading firms. There’s an obvious risk of insider trading, particularly around US government information, especially since Trump himself is one of the highest profile accounts, and stands to profit from this as he owns around 41 percent of TMTG. The company reported a quarterly loss of $238 million between April and June. For context, there have previously been claims of insider trading around US government statements over the Middle East conflict.
Finally Britain, has been treated to an epic intergalactic battle over the last six weeks between the forces of good and evil, fought through a by-election on Clacton-on-sea. This started with the failure by Nigel Farage, the right wing leader of the Reform party, to declare a £5 million donation from a Thai-based crypto billionaire, which is being investigated by the Parliamentary Standards committee. The British system is not clean enough to outlaw such payments. Instead it relies on transparency so that a) politicians can keep the money without being accused of hidden bias, and b) voters can judge if said politicians are prioritising donors’ concerns over theirs.
Farage forced the by-election in an effort to paint himself as a victim of the establishment, in this case represented by Count Binface, a man dressed in a cape with a bin on his head who apparently hails from the planet Sigma XI. Farage won, but the parliamentary investigation has since resumed and may yet lead to a further by-election. And Count Binface took 26.9 percent of the vote suggesting that his signature policy of capping the cost of a 99 flake icecream at 99p resonated with voters during the heatwave. It’s possible that we may look back on this as the highpoint of British politics. Go Binface.
Nessan Cleary 
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