What's going on?
According to construction and manufacturing survey data released on Friday, the UK’s building on while Italy’s, comparatively, crumbling.
What does this mean?
The surveys in question ask what managers are seeing in their businesses by way of new orders and spending patterns, and their overall confidence – effectively giving investors an ear to the ground with which to keep tabs on economic growth (or lack thereof). Building and manufacturing activity in the UK’s largely adding floors, albeit at a slower rate than in previous months – which doesn’t knock the Bank of England (BoE)’s stance that the economy’s running at full capacity.
The water keeps on rising in Italy. Manufacturing activity is actually on the decline, thanks to fewer new orders and declining demand for exports – adding insult to injury after data last week showed that the Italian economy didn’t grow at all in the third quarter.
Why should I care?
For markets: The UK’s coming up to a tightrope.
Although activity was up in the UK, optimism and confidence were decidedly downbeat. One concern is that when the country leaves the European Union (EU), it’s anyone’s guess what happens to companies’ access to supplies of products they want from the rest of Europe (like car parts or wine), or what’ll happen to Europe’s demand for products and services from the UK. Not to mention the ramifications on prices for these products, both ways. That uncertainty’s likely a reason why the BoE chose not to make borrowing money more expensive, leaving interest rates unchanged on Thursday.
The bigger picture: Italy’s sour grapes.
Italy’s currently wrangling with the EU over its high spending plans, which remain despite its debt-riddled economy (its debt is a third larger than the size of its entire economy). Zero economic growth, coupled with declining manufacturing activity, makes Italy’s proposed budget appear very optimistic indeed. But the Italian government says that the country’s economic growth would crescendo if it were simply allowed to spend more (borrowed) money.