Economic outlook and the prospects for AiM investors

The latest EY ITEM Club Economic Outlook makes for some interesting reading.  The Ernst & Young sponsored forecasting group use HM Treasury’s model of the UK economy to produce quarterly reports.  The latest forecast is for the UK to produce 1.8% GDP growth this year before falling back to 1.2% in 2018 and then rising to 1.5% in 2019.

The group’s underlying analysis is the most interesting thing.  It sees a shift in the balance of demand following the fall in the sterling exchange rate in the wake of the Brexit referendum vote.  In effect this means that the economy is already adjusting for life outside the EU.

The group expects growth to slow down during the course of the year as consumers rein in spending in response to slowing wage growth, rising inflation and a record low savings ratio.

Whilst this sounds grim there is, most fortunately a silver lining in the cloud.  This silver lining is a strong revival in overseas markets.  World trade and industrial output are now growing faster than at any time since 2010, when they bounced back from the recession caused by the 2008 financial crisis.  We now have a situation where both the Eurozone and the US are surprising on the upside.

The revival partly reflects the knock-on effects of the collapse in commodity prices in 2015.  Their recent recovery has pushed inflation back to target levels almost everywhere and so the worries over deflation have eased, especially in the Eurozone.

Looking beyond the UK, Europe and the US the latest OECD Interim Economic Outlook, published on 7 March, forecasts global growth of 3.3% this year, rising to 3.5% in 2018.

FocusEconomic say that recent data suggests that the dynamics in the Association of South East Asian Nations (ASEAN) points to the probability of 4.8% growth being achieved this year.

With the outlook for global growth so positive this should be good news for exporters in the UK who still have the benefit of EU Membership for the next two years at least and the added benefit of a competitive currency.

The AIM section of the market continues to surprise many.  Throughout the review period the FTSE AIM All-Share Index has outperformed the main market as measured by the FTSE All-Share Index by over two and a half times in percentage terms. The Stellar AIM portfolio has matched this rise and many of our companies are benefitting from the impact of a weaker sterling on their strong overseas earnings.

Looking ahead we have strong optimism despite anxieties that will inevitably arise from the forthcoming Brexit negotiations.

Commentary provided by Pilling & Co Stockbrokers Limited, for further details about our ESP AiM Portfolio Service click here.