Halloween was a fitting end to one of the scariest months for international markets in memory.
World equity markets fell to the tune of 20-30%, several countries propped up their banking systems with liquidity and capital injections and deposit guarantees, credit markets effectively shut up shop, and the major central banks tried (without success at the time) to boost market confidence with simultaneous interest rate cuts.
Even though the Herculean efforts of policymakers seem to have averted catastrophe in the financial system, this risk has been replaced by the nearcertainty of a worldwide recession.
These conditions were fully reflected in the latest survey of business opinion.
The budding recovery in business confidence was well and truly squashed in October, with the headline measure plunging to a balance of -42%. A net 11% of firms expected their own business to deteriorate, the second-worst reading in the history of the survey. Profit expectations, and employment and investment intentions, were also the lowest on record.
It’s difficult to say whether this latest blow to confidence will translate into a similar drop-off in domestic activity, though there are certainly some anecdotes for October pointing in that direction. Our view has been for some time that GDP growth in Q4 will be ‘grumpy’ growth, limited to areas such as agriculture, mining and power generation, with relatively few consumers and businesses feeling the direct benefits.
