Pandemic, climate change and rising debts pose fiscal risks to UK, warns watchdog – business live

Good morning and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

German factories have suffered their steepest fall in orders since the first lockdown, in a sign that the global recovery is uneven as supply problems hit economies.

German manufacturing orders fell by 3.7% in May, new figures from the Federal Statistics Office show — dragged down by a slump in overseas orders, and less demand for heavy duty machinery.

It’s the first drop in new business this year — at a time when Germany’s economy seemed to be rebounding strongly from the pandemic.

Economists surveyed by Reuters had forecast of a 1% rise, and May’s fall comes after an upwardly revised increase of 1.2% in April.

Although domestic orders increased by 0.9% during the month, foreign orders slumped by 6.7%, with orders from beyond the eurozone sliding by 9.3%.

Manufacturers of intermediate goods (used to make final products) saw new orders fall by 3.6%, while capital goods makers saw demand slide 4.6% – although consumer goods demand was stronger, up 3.9%.

Destatis news
(@destatis_news)

#Manufacturing in May 2021: new orders down -3.7 % on the previous month. https://t.co/3s3e4wsukn pic.twitter.com/33VbdnKtJk


July 6, 2021

Germany’s car sector – so often a growth driver – had a bad month, suggesting that the global shortage of key parts such as semiconductors is continuing to cause ructions.

Bloomberg explains:


Orders fell 3.7%, worse than all estimates in a Bloomberg survey. The Economy Ministry said the slump was driven by weak export demand for cars following a steep rise the previous month. Domestic orders rose 0.9%.

German companies are battling with unprecedented supply-chain problems as a result of a sudden surge in global activity following the end of coronavirus lockdowns, a trend which is also driving up prices amid competition for inputs and raw materials. While some of those bottlenecks may have started to ease, it’s likely to take time for disruptions to pass.

Bloomberg
(@business)

German manufacturers unexpectedly see a slump in demand, led by weak car exports https://t.co/NugcXM2cUE


July 6, 2021

Oliver Rakau of Oxford Economics says global supply shortages played a key role in the drop in orders:

Oliver Rakau
(@OliverRakau)

German May factory orders disappointed sharply relative to consensus (not as much to me though, OE: -1.2%). A near 10% plunge in car orders was the key driver, but there was also weakness in related supplying sectors. 1/2 https://t.co/MBTZiZNcr5


July 6, 2021

Oliver Rakau
(@OliverRakau)

Global supply shortages play a key role, but that is likely reinforced by the restocking boom easing. Tmr’s industrial production data is alos likely to disappoint (Consensus: +0.5) given the 0.5% fall in turnover. The recovery will heavily rely on services over the summer. 2/2


July 6, 2021

Oliver Rakau
(@OliverRakau)

German industry & especially the auto sector is sitting on a mountain of orders despite the sharp fall in new orders reported today for May. Once supply restrictions ease, production will be ramped up fairly quickly. But the timing of that bounce may only materialize towards Q4. pic.twitter.com/WKn1h6fopJ


July 6, 2021

Oliver Rakau
(@OliverRakau)

There were two bright spots in today’s dismal factory order report out of Germany: Consumer goods orders rose further in May pointing to good chance of part of excess savings stock being released. And domestic investment goods orders point to a swift rebound in domestic capex. pic.twitter.com/mdFdjsXuxM


July 6, 2021

Also coming up today

Oil continues to hit its highest levels since 2018, after the Opec+ group failed to agree a new plan to ease its production cuts beyond this month.

Brent crude is up 0.4% at $77.46 per barrel, the highest since late 2018, as traders anticipate tighter supplies.

CommSec
(@CommSec)

[CHART]ASX Energy names in focus this morning after oil prices surged to their highest levels in almost 3 years
after OPEC+ abandoned its meeting without a deal, leaving the oil market facing tight supplies &
rising oil prices. Brent crude rose 1.3% to around US$77.16. Bloomberg pic.twitter.com/VJLrN72HS6


July 5, 2021

The UK’s fiscal watchdog, the Office for Budget Responsibility, is publishing a new report on the fiscal risks facing the UK.

The report will include analysis of the “unprecedented economic and fiscal shock” of the Covid-19 pandemic — covering the government’s fiscal support, the ‘legacy risks’ they may pose to the public finances and the economy. It will also examine what lessons can be learned for “understanding and managing other catastrophic fiscal risks”.

It will also consider climate change — and the potential economic and fiscal consequences of unmitigated climate change relative to a world in which the Paris targets for limiting global warming are met; approaches to decarbonising the UK economy; and different scenarios for meeting the Government’s target for net zero emissions from the UK economy by 2050.

The report will also examine the UK public debt – which hit £2trn for the first time under the pandemic – looking at the historic drivers of debt levels and interest rates; potential scenarios for the future path of interest rates; and their implications for long-run fiscal sustainability.

Office for Budget Responsibility
(@OBR_UK)

Our 2021 Fiscal risks report will be published at 9.30am tomorrow 📗

Our third #OBRfiscalrisks report will focus on 3 major risks to the public finances: the coronavirus pandemic, climate change and government debt.

Follow us tomorrow for highlights and charts 📊 pic.twitter.com/QUJ4uhny7q


July 5, 2021

The owner of car brand Vauxhall is expected to announce plans to build electric vans at its Ellesmere Port plant in Cheshire, safeguarding more than 1,000 factory jobs.

Stellantis, formed this year by the merger of Peugeot and Chrysler, has decided to invest in switching the plant from producing the Astra to a new model of electric van.

Stellantis has held talks with the UK government over financial support for further investment in the factory, as my colleague Gwyn Topham explained last week:


The exact government support is unlikely to be disclosed, but could run to around 10% of the total investment, which is believed to be between £300m and £400m. The Stellantis announcement will follow news this week that Nissan is to build a £1bn battery gigafactory in Sunderland, believed to be with a subsidy package from the UK taxpayer of around £100m.

Peter Campbell
(@Petercampbell1)

Here (👇) is what we know so far about the Stellantis electric van to be made at Ellesmere Port.

In unrelated news, I’m on the 07.07 train to Liverpool…
☕☕☕☕☕ https://t.co/4Oht3lzP7e


July 6, 2021

We also find out how UK and eurozone builders fared last month, with the latest construction PMIs

The agenda

  • 7am BST: German factory orders for May
  • 8.30am BST: Eurozone construction PMI for June
  • 9.30am BST: UK construction PMI for June
  • 9.30am BST: Office for Budget Responsibility publishes
  • 10am BST: ZEW survey of German economic sentiment
  • 3pm: US services PMI survey for June

source: theguardian.com