Blockchain technology finds its origin in the digital
coin named Bitcoin. It was invented
primarily to sustain it. Although blockchain is tightly associated with Bitcoin
and other cryptocurrencies, these are just the top of the iceberg.
Currently, blockchain technology is being used in other commercial applications, and annual growth of 51% is expected for 2022 in several markets, including financial institutions and Internet of Things (IoT).
What is blockchain
technology, and what makes it secure?
A blockchain is a list of digital records or blocks of
data that are stored in a linear chain that is constantly growing. It´s a kind
of digital general ledger than can be shared with many users and that keeps
record of every transaction. Each block contains encrypted data, for instance
of a Bitcoin transaction, and is linked to the specific user that made it.
There´s no way to alter the data in them since they are time-stamped and
connected to the previous block.
The security of blockchain relies on the fact that it
can be updated only with the agreement of all the participants and the system
The information of the whole chain is kept in each
node, so each participant has an exact copy of the entire chain. If someone
wanted to attack the service, he should overturn or nullify every node in the
net given that just one operative node is enough for all the information to be
As new records are created, these are verified and
validated by the nodes and added to a new block that is linked to the chain.
Once added, this block becomes unalterable. For a transaction to be accepted
and added, some specific digital signatures or requirements must be met. For
example, people that use the crypto-currency Ethereum, must meet several
conditions to demonstrate that they have that crypto-currency and can operate
Why is blockchain useful for?
As it is a peer-to-peer network, where transactions
are time-stamped, and that enables managing all the information exchange among
the users in an autonomous way, without the need for an administrator, it is an
excellent tool for all types of businesses. Any information that needs to be
kept intact and available can be safely stored in a blockchain.
Many industries, such as transport, fintech, and
sanitary services, to mention just a few, are taking advantage of this
technology that streamlines processes, improving productivity.
Challenges organizations or companies could face with blockchain
Thanks to blockchain, the operative models and
business-making models of the companies and organizations could undergo a total
transformation with the adoption of blockchain technology. Many organizations
are using blockchain technology for their transactions. Still, if it were
massively adopted, one of the challenges that governments of extremely
controlled sectors will have to solve is the lack of regulation.
Blockchain is complex, and it takes a longer time to
process any transaction. It can take hours to complete a transaction. And the
more it grows, the slower it gets. This could be an obstacle for specific
Despite the above, the biggest challenge that blockchain technology faces is the reluctance of private and public sectors, along with the skepticism of the potential users who, as with each new technology, need time to learn, get used, and trust.
Financial reporting refers to the exposure of the company’s finance to the stakeholders. These stakeholders are creditors, investors, the public, etc. The company’s finance report shows taxes, costs, and profits after a definite period. For this reason, you come to know the health of a firm. It does not offer more insight, though, but it is vital for a company’s success.
The main parts of a financial report are:
The final statements
Notes to financial statements
Quarterly and Annual Reports (listed company)
Management Discussion and Analysis (Public Company)
Ways of Financial
There are three ways to make financial reports:
The GAAP: GAAP is
the set of book-keeping rules, and in the USA, SEC follows it. This system
makes sure that the report is clear.
The IFRS: More
than 110 countries use this system. The countries include Canada, China, and
This system gives a global voice to business matters.
Therefore they become easy to read internationally.
The GDPR: This
system has a new set of rules and started on May 25, 2018. The new rules give
safety to a person’s private matters.
Also, it assures that financial reports must compliant when
they got sensitive data.
Uses of Financial
Financial Reporting is the need for every firm, and the
stakeholders want it for many reasons. Let us see the benefits of financial
Decision Making: Financial
reports are a great tool to make decisions. They show all the changes that can
affect the cash flow. So, you get to know how the firm collects the cash. You can
make better decisions by analyzing the condition by the report.
business needs to lend money at any stage. So, with the help of the report, the
creditor knows how much money you owe already. In short, financial reporting
shows an actual image of a firm.
For Customers: It
keeps the clients updated about the firm’s growth. Hence, it helps to build the
client’s trust level.
Track Weakness: You
can track any financial activity with the report. Thus, it helps you to tackle
all potential defects by just a look. As a result, you can upgrade the health
of your firm.
For Management: Financial reporting is helpful for management, as well. It can analyze the
report and make better decisions for the company.
For Investors: As
a report depicts the performance of a firm, the investors can make rational
investment, credit, etc.
Company’s status: It helps to find where the company stands after a certain period. Hence, you
find details about an increase in sales, market share, and profit.
Legal Demands: A
company has to file a report to agencies like ROC, state, etc. So, financial
reporting is useful in this respect.
Use of Resources: By report, the company manages the use of resources in the best way.
In short, financial Reporting has all the reliable data about the firm. As a result, stakeholders can use the data for many plans. Also, financial reporting aids capital inflows and brings good competition.
The company has always exposed to uncertainties that are called business risks. They may affect a firm’s aim to gain its goals. The danger of loss is in the form of machinery breakdown, strikes, change of trends, etc.
Factors Causing Business Risks
Business risks result in less profit or even loss. The
factors that lead to risks can be Internal or External.
Internal Business Risks: risks that arise due to some event happening within a firm are internal risks. However, the firm can control them. Internal risks occur by:
technology, fire, cost-cutting, etc.
External Business Risks: External risks occur by any event happening outside the firm. However, the firm’s management cannot control them. The factors that lead to external risks are:
price pressure, riots, etc.
Types of Business Risks
Risks have divided into five kinds:
Strategic Risk: The risks associated with business operations are strategic risks. They arise when the business plans fail. Poor business decisions lead to failure, e.g., marketing risk, project risk, competitive risk, etc.
Financial Risks: These risks related to business events and finance. It adds to shareholders by debt financing, along with equity.
For example, there can be losses by movement in stock
prices, interest rates, etc.
Operational Risks: These risks linked with official procedures of a business. There is a failure to connect to internal policies.
For example, some events like frauds, computer hacking,
etc. affect a company’s daily activities
Compliance Risks: Such risks occur by state rules and commands. When the company fails to follow laws, it has to face legal penalties. These risks ensure that the firm runs justly.
For example, corrupt practices, social responsibility, etc.
Reputation Risks: The negative publicity of a firm/product leads to this risk. There is a chance that a company’s name can damage.
For example, a mobile company issues a phone that breaks
easily. But then it markets a new and better model.
Ways to Manage Business Risks
You can plan to manage the exposure of risks.
Mitigate the risk: You need to keep a contingency plan. In case if the risk materializes, you must have a second plan to follow.
Avoid the risk: It’s better to avoid than to bear a loss. Sometimes the launch of a product leads to affect the company financially. You can postpone it until your company stabilizes.
Transfer the risk: You can pass financial risks to someone else. For instance, fire insurance is the best example of it.
Accept the risk: If the risks are likely to happen, you can opt for small damage. So, examine the other option and make the right decision to accept the risk.
Business risks lead to uncertainties, but a good businessman takes them as a challenge. Risks lead to new clients and more sales. You can, however, manage to minimize the worst to happen.
The world’s first open banking
business Lending-as-a-Service platform has completed a £1.5m funding round led
by Hambro Perks, the leading UK early-stage venture firm.
London, 30 October 2019 – Trade
Ledger, the ground-breaking business lending platform, which automates
commercial lending processes for global banks and alternative finance
providers, today announces strategic investment in a £1.5M round led by Hambro
Perks, to further accelerate revenue growth.
Established in 2016 and now
operating on three continents, Trade Ledger’s unique lend-tech platform
automates all types of digital business finance, helping bank and non-bank
business lending organisations alike to fast-track economic growth through
process automation and scaling of business credit operations. Trade Ledger uses
financial data APIs (often referred to as Open Banking), Machine Learning,
Artificial Intelligence and Robotic Process Automation technologies to enhance
or replace old and costly legacy bank systems for origination, credit
decisioning, take on and loan management, enabling new cutting-edge working
capital solutions for business customers. The resulting new lending solutions
can reduce the time-to-cash from 90 days which is the industry average to 4
minutes and are better tailored to the working capital needs of modern
Trade Ledger’s co-founder, Martin
McCann, and his team believe that transforming business lending operations
through the Trade Ledger Lending Platform is the single biggest area of
opportunity for commercial banks and financial services organisations to
benefit from Open Banking in the near future. “There is a £1.2 trillion gap in
credit that businesses need to optimise growth which is why we created this
lend-tech”, explained McCann. “We believe that only by reimagining new types of
credit services only possible with this lend-tech, can banks solve this massive
business problem profitably and at scale globally. By leveraging open trade
data via APIs alongside other enterprise-grade enabling technologies, financial
institutions can drive significant operational efficiencies and product
innovation within their internal operations and dramatically increase market
“My co-founder Matt and I launched
Trade Ledger in 2016 to improve the business customer’s experience in their
financial supply chain, by helping banks re-imagine the entire process”,
continued Martin McCann. “With the increasing threat of big technology firms
like Google, Amazon and Alibaba bridging the gap between traditional financial
services and the supply-chain eco-system, incumbent banks and lenders must
start thinking about how they remain relevant. Trade Ledger is currently the
only true platform in the world that can help them do this at a global scale in
the business lending sector.”
George Davies, Partner at Hambro
Perks added: “We are delighted to be backing Trade Ledger as Martin, Matt and
the Trade Ledger team continue to develop market-leading tech that benefits
businesses around the world. Hambro Perks is committed to supporting brilliant
founders and teams that are building global businesses, and we believe that Trade Ledger has enormous global
potential. We are
very excited about Trade Ledger’s rapid growth and to support Martin and Matt
as they tackle the barriers that have created such a vast undersupply of
working capital for businesses across the globe.”
The Trade Ledger Platform provides a complete innovation layer that masks the clunky traditional corporate business banking environment and delivers an excellent consumer-like experience. Trade Ledger supports compliance with new regulatory requirements through aggregation and normalisation of better credit risk data whilst underpinning the wider commercialisation of open data and adoption of new banking business models to generate new revenue streams. The platform orchestrates value in the lending ecosystem by moving organisations from process-led engagement to an automated data-driven lending model.
About Trade Ledger
is the world’s first open banking lending platform that gives banks the ability
to assess business lending risk in real-time. This will enable banks to address
the £1.2 trillion of undersupply in trade finance lending globally while
providing high-growth companies with the working capital needed to sustain
About Hambro Perks
Hambro Perks (www.hambroperks.com) is a London based venture
firm that backs and builds leading technology companies. Founded by Dominic
Perks and Rupert Hambro CBE, Hambro Perks invests at an early stage and helps
companies to scale with capital and strategic support. The firm invests from
both its permanent capital and Co-Investment EIS Fund that is open to high net
worth investors and is soon to launch other funds. Hambro Perks has backed more
than 40 businesses such as the digital pharmacy Echo, the geocoding system
What3Words, and the Muslim matchmaking app Muzmatch.
pound and UK financial assets will be volatile in the run-up to Britain’s first
December general election since 1923 – and will remain so in the event of
another hung parliament.
is the warning from Nigel Green, CEO and founder of deVere Group, one of the
world’s largest independent financial advisory organisations, as Labour
announces it is now backing the government’s bill for a December election,
regardless of the date.
Green comments: “This is a critical stage in the slow-moving, damaging,
torturous Brexit saga.
the pound and UK financial assets to be increasingly volatile in the run-up to
the general election, given the wide-ranging set of outcomes.
most detrimental of these outcomes for sterling, UK financial assets and the
wider British economy, include another hung parliament or a victory for
Jeremy Corbyn’s Labour party.”
continues: “Boris Johnson’s intention to secure a majority within the House of
Commons is by no means guaranteed.
Brexit Party will use the fact that Mr Johnson did not deliver Brexit by
October 31 – something on which he staked his whole premiership.
Remain vote could also be split between Labour, the Lib Dems, the Greens and
fragmentation on this scale has never happened before in the UK.
a hung parliament looks like an alarming possibility, meaning there could be no
majority to quickly and smoothly resolve the Brexit chaos.
grinding deadlock continue, the UK economy would still
haemorrhage investment and confidence. The fallout of Brexit has cost the
UK three and a half years of lost opportunity and many, many tens of billions
of pounds. This would only intensify with another hung parliament.”
adds: “Meanwhile Jeremy Corbyn’s Labour party will campaign on the most
radical, left-wing manifesto in more than a generation.
he win this election, his anti free-market policies – such as the
re-nationalisation of industries from utilities to railways to postal services,
and the forcing of companies to give 10% of their shares to staff – plus
his high-tax policies, including a possible wealth tax, will spook the financial
markets, hit long-term sustainable growth of the British economy, put more
pressure on UK financial assets, and lead to a significant sell-off of the
Mr Green concludes: “The general election is set to be the most contentious and uncertain in generations. Investors now need to protect and build their wealth and assets by ensuring they are properly diversified across asset classes, sectors, currencies and regions.”
deVere Group is one of the world’s largest independent advisors of specialist global financial solutions to international, local mass affluent, and high-net-worth clients. It has a network of more than 70 offices across the world, over 80,000 clients and $12bn under advisement
● One in eight share bad news with family
and friends via text message
Brits find money matters
the most uncomfortable conversation topic
New research has revealed just how
reluctant Brits are to have face-to-face conversations, with many choosing to
deliver bad news via technology.
The study, conducted by savings and mortgage provider The Nottingham, asked over 2,000 Brits about the conversations they find most difficult and the methods they use to avoid face-to-face interaction.
It found that almost one in eight (13%)
Brits share bad news with friends and family via text or instant message. Women
are more likely than men to choose such technology for these conversations (14%
vs 10%), but nearly half (45%) of the nation don’t deliver bad news in person.
Age is also a factor, with the younger
generations finding face-to-face conversations more uncomfortable than older
groups. Three in five of those aged between 25-34 (60%) use technology to share
bad news, compared to just a third (33%) of over 55s
The conversations Brits find most
difficult tend to be around finances. Respondents were asked to rank a series
of conversations on their level of discomfort and the topic of saving was rated
the most taboo, closely followed by mortgages.
In fact, Brits feel more comfortable
telling friends and family members about health problems and relationship
issues than they do about their financial situation.
The conversations Brits find most
But it’s not just awkward topics that the
nation is shirking, but face-to-face conversations in general. The research
found that around half of Brits (49%) have a conversation in person with their
best friend on a weekly basis, while more than one in six (17%) speak to their
siblings face-to-face less than once a month.
While this reluctance to talk in person,
especially about finances, is found across the nation, it is more common in
some UK cities than others. The people of Bristol find money talk the most
challenging, with its residents finding the subjects of mortgages and savings
more difficult to discuss than those in any other city.
At the other end of the scale, the
people of Norwich are the most comfortable with financial conversations with
friends and family.
The top five cities which find financial
conversations with friends and family the most and least comfortable are:
Discussing ‘Money Matters’ across the UK
Most Comfortable Cities
Least Comfortable Cities
The study found when Brits discuss
finances; they feel happiest doing so with their partners. However, while friends
and parents were tied in second place in terms of preferred listeners, young
Brits (aged 25-34) would rather talk about money with their mates.
Tina Hayton Banks, Director of Member
Services at The Nottingham, said: “It can be really difficult to discuss
finances with loved ones and our research has highlighted just how
uncomfortable Brits find such conversations, especially face-to-face. Through
their reluctance to talk in person, younger generations risk falling through
‘the advice gap’. Particularly when it comes to finances, there’s only so much
you can find out online before you need to talk to an expert around your
specific circumstances and goals.”
“At The Nottingham, we value the art of
conversation and pride ourselves on talking to our members about their finances
whether in person at one of our branches or using technology, such as speaking
to a mortgage adviser face-to-face over video. These conversations can be
really valuable to customers, sometimes helping them understand certain products
better or saving them money by getting them a better interest rate or mortgage
deal. So when it comes to money matters, it really does pay to talk.”
The Nottingham is a top-ten building society and estate agency operating online and via a network of over 60 branches across 10 counties. The Nottingham offers a broad range of building society services such as mortgages and savings, as well as whole-of-market mortgage advice provided by Nottingham Mortgage Services. Founded in 1849, The Nottingham is a mutual building society owned by its members with a long and proud history of doing the right thing and helping communities in its heartland prosper.
 Survey of 2,006 UK adults conducted by The Leadership Factor in October 2019 on behalf of Nottingham Building Society.
No matter what linked to money moving in and out of business is a financial risk. Financial risk management is a way of knowing and handling financial risks. These are the risks your company may face now or in the future. The key to any financial risk management policy is the business plan. A plan that will show workers what they can and cannot do. Also, choices need to escalate, and who will bear the overall duty for any risk that may arise.
Financial Risk Management and its Importance in an Organization
Risks may come from external and internal sources. External threats are those that are not under the direct control of executives. These risks include interest rates, market rates, state issues, and so on. Internal risks include breach of data or non-compliance, among many others.
Risk management is vital in business as, without it, a company cannot set goals for the future. If a firm sets goals without taking risks into account, they will likely lose track as any of these risks reaches their place. Many groups have added risk control units to their team. The team aims to identify risks and develop plans to protect against these risks. They are also bound to move all members of the company to join in these strategies. The same, the risk control team is liable for valuing all risks while fixing the ones that are critical for the business. Risk control ensures that the firm allows only those risks that will aid it in giving its primary objectives. It is likely if they keep all other risks under control.
Financial Risk Management – How to Implement
Companies manage financial risk in many ways. It is a process that depends on the company doing and on the level of risk it takes. The company managers must know and assess the risks. Also, they should decide how they will manage it.
Some steps in the financial risk management process are:
Identify exposure of risks: Risk control begins with the recognition of business risks and their sources. A high point to start is the company’s budget. It gives insight into the liquidity, debt, interest rate risk, and currency risk. It also grants info about weak stock prices faced by the company.
Exposure analysis: The next step is to identify or set numerical value for the known risks. Analysts tend to use regression and standard deviation methods. These are ways to measure a company’s exposure to various risk factors. These tools cover how diverse data points differ from average or mean.
Make a “smart” choice: After analyzing the risk’s roots, decide how to move with this report. This decision-making rule depends on many factors. E.g., company goals, market context, risk appetite, and if the cost of mitigation favors the risk drop.
Financial risk management terms business on how to deal with risks if they arise. It helps to learn many ways and means for managing these risks. It also gives the company the courage to execute and form a useful control plan to prevent or reduce losses.
The future of the IoT or Internet of Things extends to change as state of affairs change. All progress of today connects to IoT. The IoT is here, and it is making steady progress in many industries. We can expect more than 75 billion devices connected over the Internet of Things by 2025. It takes some aim to get into the IoT, but taking some expert advice will boost your business. When you are ready, be adapted to make the next moves with technology.
Future of IoT is an opportunity for a business IoT tactics usually base on a small local axis and cloud-based access to knowing the benefits. They range from primary use cases, e.g., machine learning and artificial intelligence. Some of the aids of the IoT need a transition to a partial cloud. For this, you will have to plan for that as well.
Real IoT: It exists – there are a lot of chances and data for those concerned.
Viable IoT: The actual cases of the company make it more realistic.
Design reason can help ease the start-up process.
Lastly, it comes to taking useful tips on how to reach this.
IoT merger with blockchain and AI
IoT is not the expertise of change meant to be alone at the same time. It is in its place, arising among emerging techs and IoT. Cloud, blockchain and applied science are the keys to causing market value and growing finance. We defeat the main hurdles, such as data analytics issues, bandwidth, and costs. Yet, we are entering to see early waves where firms can charge higher than expenses in IoT.
IoT and machine learning groups give the mind that
allows them to apply IoT business tools to the info they offer. Rather than
refer to data producers. Small computing lets it scale by ranging the cloud
function to the edge. It helps fix cost, bandwidth, and safety issues. IoT will
base on endless growth, integration, and the growth of these new techs.
It is to gain the desired results at the industry
level. Fog Computers, AI solutions, and IoT have the potency to exceed their planned
business. It is why a future-thinking company met on integrating them.
Based on clients and form, IoT can be set into three parts
for the user adds connected devices such as smart laptops, watches, phones,
cars. Moreover, count fun systems and other related devices.
adds things like medical devices, asset control, and tracking devices.
covers things like related flow meters, water waste systems, drains screens,
and electric meters. It also adds building a robot and other related smart
systems and tools.
The future of IoT is vast. Rising network agility, unified AI, and the ability to deploy on a full scale will revive the growth of the Business Internet. It is not only to put billions of devices together but also to take the aid of a large amount of valuable data.
Car manufacture on the continent riddled with looming trade war seems headed for a dead-end.
Remember the good old days when the biggest challenges the European car industry faced were the oil crisis, the rise of Japanese carmakers, and disgruntled unions? Today, the car industry is fighting for its very survival as the mobility sector is transformed by new technologies.
One can forgive European carmakers for being a bit distracted by shorter-term concerns like the threat of US tariffs, slumping Chinese demand, and stricter emission standards.
Europe and its car industry are already dealing with US steel and aluminium tariffs imposed in 2018 as part of the trade war. In May 2019, the US Department of Commerce announced that foreign cars and car parts were a threat to US national security. Tariffs of up to 25 percent could be imposed, with a decision to be made within 180 days of the announcement. Negotiations behind closed doors must be frantic. EU governments are sit-ting down to agree on a unified, post-European elections approach. German car executives have already been to the US to try to reason with President Donald Trump.
Escalating trade war that involves vehicle companies
An escalating trade war would be disastrous not just because of the direct impact on demand, but also because the European car industry is a global supply chain. Cars and parts are made around the world and assembled in various countries. Tariffs will drive up costs, and may cause carmakers to relocate their production centres.
Brexit is a similar problem but on a smaller scale — and with less certainty. Already several carmakers have closed or reduced production in Britain. Honda is closing its Swindon plant, Nissan is moving some future production back to Japan, and even Dyson has moved its electric car subsidiary to Singapore.
European car makers are also reeling from a slump in car sales in China, recording 11 months of de-creasing sales by this May. Many carmakers are desperate for an improvement in the second half of the year, but there is little optimism for a quick turnaround. China became the biggest car market in 2010, and in 2017 had 35 percent of the passenger car market; the EU was the next-biggest at 21 percent, with the US following at nine percent. The slump is a major cause for concern.
To take advantage of the growing market and to meet Chinese government requirements, many Europe-an carmakers have set-up production in China, mostly with joint ventures. Volkswagen produces close to 40 percent of its total production in China, Peugeot (PSA) close to 20 percent.
European carmakers have bet big on China trying to navigate the trade war — and now they are facing the costly prospect of stricter emission regulations as well. In the wake of the 2015 “Dieselgate” scandal, European policymakers are determined to cut emissions from motor vehicles. They are proposing a 15 percent cut in average CO2 emissions for cars produced in Europe by 2025, and 35 percent by 2030. Many cities have announced future bans and restrictions on diesel vehicles, including Paris, Hamburg, Berlin, and London. This is forcing a costly transition on European carmakers — but in forcing them from diesel to electric, it may be a strategic blessing in disguise.
All these pressing concerns represent serious challenges, but European carmakers must also look ahead to other existential challenges.
Vehicle companies in 2030
By 2030, 30 percent of a car’s value will be in its software, but Europe is lacking the relevant expertise. The biggest software advances are being made in Autonomous Vehicles (AV), followed by increased connectivity. Self-driving cars will communicate with others to manage traffic, while passengers benefit from a range of new services and entertainment. High-end cars already have around four times more lines of code than a F-35 fighter jet — twice that of the CERN Large Hadron Collider.
The leaders in AV are US tech firms, notably Google and Apple, as well as Tesla and the Chinese firm Baidu. European carmakers are behind the pack, but attempting to catch-up through acquisitions and strategic alliances. Ford and Volkswagen have made an agreement to share AV technology; Fiat-Chrysler have aligned themselves to Google; Audi, BMW and Daimler (Mercedes-Benz) have bought a digital mapping company. Daimler has also been working with Uber; BMW with Intel and Israeli firm Mobileye, and Renault-Nissan has partnered with Microsoft.
Technology is changing how cars are used and could impact the trade war. Ridesharing will challenge the concept of the private car — and Europe is trailing here also. In 2017 it was estimated that 338 million people used ridesharing ser-vices like Uber, Lyft and China’s Didi Chuxin. That growth could become exponential when companies introduce AVs dedicated to ridesharing. By 2030 it is estimated that one in 10 cars will be shared. Euro-pean carmakers are scrambling to join forces with former competitors and ridesharing platforms to make up for lost ground: BMW and Daimler have merged their ride-sharing divisions, and Volvo is working with Uber.
Trade war: electrification
Another big technological disruptor to European carmakers is electrification. Electric cars are not new, but recent improvements in batteries, drivetrains and public charging infrastructure have started to make electric cars a viable alternative. China is the leader here, with 400 electric car options on the market; in Europe there are six. The biggest electric carmaker in the world is China’s BYD. China, Japan, and South Korea are leaders in battery production. Tesla has a Gigafactory in Nevada, and one under construction near Shanghai.
Europe is currently at the mercy of Asian suppliers. Volkswagen and BMW have announced plans to produce their own batteries, in co-operation with Goldman Sachs, Ikea, and a small Swedish battery pro-ducer Northvolt — but the first examples will not be ready until 2022.
The transition to electric cars will also have an impact on the workforce. Electric cars are less complicat-ed, requiring fewer workers. A typical electric engine has just 200 components; a diesel engine has 1400. By 2030, as a result, it is estimated that 300,000 manufacturing jobs will be lost in Europe. More will be lost indirectly. The industry currently employs 13.3 million people, 3.4 million of them in manufacturing.
European carmakers are feeling the pressure. The CEO of Volkswagen, Herbert Diess, recently said that the European car industry could mirror the demise of that in Detroit. That seems an extreme scenario, as European carmakers are now making swift, bold decisions. The industry has a long history, and is de-termined to have a bright future.
Will growth continue to slow, or will Europe fall into recession as global economic risks overtake it? Whatever the result, rather than being a distraction from politics, the economy will probably intensify the political challenges.
Economic Growth continues to slow
The Euro Area is heading for a second straight year of slowing economic growth. In 2017, GDP growth was at 2.4%, while 2018 is expected to be around 2%. In 2019, the IMF has forecast 1.9% (World Economic Outlook, Oct 2018), while the World Bank has forecast 1.6% in 2019, 1.5% in 2020, and 1.3% in 2021 (Global Economic Prospects, Jan 2019).
Some key countries will fare worse. Germany and Italy recorded negative growth in the third quarter of 2018, with notable decreases in industrial production. In contrast, EU members in Eastern Europe are experiencing strong growth.
Slower growth in the Euro Area is not in itself cause for concern. Despite the downward trend and negative growth in Germany and Italy, the forecasts represent continued solid economic growth. The underlying fundamentals are robust for most countries: inflation is under control, consumer spending is healthy, and Euro Area unemployment is at 10-year lows. The Euro Area looks set to add to the five straight years of growth since 2014.
Europe’s slowing growth must be seen in the context of increasing global risks to economic growth. These include the risk of a US recession,
aggressive US trade policies, and the risks from further tightening by the US Federal Reserve. If any of these risks are realised, Europe, particularly the Euro Area, may fall into recession.
The US economy appears very strong with low inflation and a strong labour market, but the stock market correction from August 2018, and the flattening (and sometimes inverting) yield curve for US treasuries suggests that the US markets are predicting slower growth. Many market-watchers are spooked by the possibility of a recession in 2019 or 2020. A US recession may become a self-fulfilling prophecy.
US trade policies entered a new era in 2018 with the March tariff on steel and aluminium, renegotiation of NAFTA (now USMCA), and the trade skirmish with China. The US has demonstrated that it will play hard on trades issues, even with traditional allies such as Canada and Europe. The steel and aluminium tariffs have had a negative impact on European exports. More tariffs cannot be ruled out.
Europe also needs to be prepared for any collateral damage from a potential trade war between the US and China. Comments after the G20 meeting in Buenos Aires gave hope of a resolution but subsequent reports suggest that negotiations will be complex, particularly as the US leverages a stronger hand with probable slower growth in China.
Another key global risk is continued monetary tightening by the US Federal Reserve in 2019, and the ensuing risk of financial contagion for, and from, emerging markets. Last year marked the long-feared end of cheap liquidity in emerging markets. As the US Federal Reserve tightened liquidity, countries like Argentina and Turkey were put into a tail-spin by markets. Advanced economies, including those in the Euro Area, remain vigilant for any potential financial contagion from emerging markets. Fed chair Jerome Powell has since tried to tone down any hawkish sentiment, and will proceed with more care. The world will be watching the Fed even more closely in 2019.
What can Europe do about recession?
If any of these global risks are realised and the Euro Area falls toward recession, what can Europe do? The ECB and national policymakers appear to have few working levers to stimulate growth. The official ECB interest rate has been below zero since 2014, while the ECB capped Quantitative Easing at the end of 2018. The ECB’s rate would thus need to rely on tools at the margins such as a new round of Targeted Longer-Term Refinancing Operations (TLTROs): discounted multi-year loans to banks. Perhaps the ECB’s biggest remaining lever to mitigate any recession is to do nothing, refraining from raising interest rates in 2019.
Unlike 2007 and 2008, many European governments (including France, Italy, and Spain) have few fiscal buffers to deal with any potential recession in 2019 or 2020. Italy has a public debt to GDP ratio of 133%, Spain 98.8%, and France 97.7% (latest figures are from 2017). Countries such as Germany and the Netherlands do have fiscal buffers, but they alone cannot mitigate a Euro Area-wide recession.
The lack of fiscal buffers will probably feed back into domestic political pressures and anti-EU rhetoric. In the event of a recession, countries with little fiscal space will be tempted to increase their fiscal spending beyond comfortable levels, which will incur the ire of the ECB, and the more fiscally conservative countries in the EU. Local leaders may then deflect this by stirring up anti-EU sentiment – a familiar path. As the economy re-emerges as a key focus, the tensions between many governments, like the new government in Italy, and the EU will probably intensify.
Need for productivity growth to get out of Europe Recession
Beyond mitigating the next recession, what Europe (and all advanced economies) really need is a new wave of structural reforms to reignite productivity-led economic growth. This includes Labour market reforms to increase flexibility and participation, as well as productivity through better vocational education and technology.
In 2017, French President Emmanuel Macron introduced labour market reforms. These included changes to the funding of vocational education and the capping of awards for workplace disputes settled in court. These have already had a positive economic impact, according to many commentators, and will help France through any recession. Macron however has resisted German-style Hartz labour flexibility reforms (part of Schroder’s 2010 Agenda).
Hartz reform supporters claim that Germany’s economic growth in the 2000s was largely because of the reforms, which reduced unemployment benefits, removed incentives for early retirement, and increased labour-market flexibility. Opponents claim the reforms had little impact, and that Germany instead.
Whatever its role in strengthening the German economy, the German electorate did not take kindly to the Hartz labour reforms. and replaced the Schroder-led SPD with the Merkel-led CDU. European governments face a similar challenge today. Economies need a new wave of structural reforms, but they are unlikely to be popular in the face of slowing growth. One of the key election-promises of the new Italian government was the removal of labour market reforms by the previous government, designed to increase labour market flexibility. It seems that economic events are set to make European politics even more interesting in 2019.