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UK digital technology sector outpacing wider economy

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The UK’s digital technology sector is growing faster than the economy as a whole and spreading beyond the south-east and big regional cities, according to an annual report.

Tech Nation 2018, compiled by the government-funded advocacy body of the same name, found that the turnover of digital tech companies grew by 4.5 per cent in 2017, compared with a 1.7 per cent rise in GDP.

Tech Nation identifies 16 “tech towns” that have a higher than average number of digital businesses. They include Burnley in Lancashire, Livingston in Scotland and Enniskillen in Northern Ireland, alongside the likes of Newbury, Slough and Swindon on the M4 corridor.

Eight cities have above average rates of tech sector employment, including Portsmouth, Bristol, Cambridge, Oxford and York.

The digital tech sector was worth £184bn to the UK economy in 2017, up from £170bn in 2016. It employs 1.1m people.

The sector recruits substantial numbers from ethnic minorities — 15 per cent are non-white, with many from overseas. It remains male dominated: 19 per cent of those working in the industry are women.

Employers say their biggest difficulty is recruitment — 83 per cent said finding talented individuals was their most common challenge, according to a survey accompanying the report.

British digital tech companies raised a record £4.5bn in venture capital investment in 2017, according to figures from Pitchbook, a data provider, almost double the previous year. Deals included the £1bn acquisition of Leeds-based Callcredit, a credit checking business, by TransUnion of the US.

An unlikely tech centre highlighted in the report is Burnley, a former mill town of 73,000 people north of Manchester that is home to almost 100 tech businesses, according to Digital Lancashire, a non-profit promotion agency. The town is the site of a University of Central Lancashire campus, and office space is cheaper than in larger cities.

Companies operating in the town include Vodafone Automotive, which develops car tracking and anti-theft devices, and Boohoo, the online fashion retailer. Daisy Group, a telecoms provider, is in nearby Nelson.

John Jackson, of FlowXO, which is based in Burnley and develops chatbots for online customer help, said entrepreneurs were active in the town and the council had fostered links between local tech companies.

His business also has an office in Manchester, 50 minutes away by train.

Tech Nation was created by the amalgamation of Tech City UK and Tech North. It receives government funding to accelerate the growth of the sector.

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Economy

Eurozone economy's slowdown may be longer than expected

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LONDON — A much-anticipated economic pick-up across the 19-country eurozone does not appear to be materializing yet, if one closely-watched survey is anything to go by.

Financial information firm IHS Markit said Wednesday that its purchasing managers’ index for the eurozone — a broad gauge of business activity — fell in May to an 18-month low of 54.1 points from 55.1 the previous month.

Though any reading above 50 still points to growth, the drop reinforces the argument that a first-quarter slowdown may not have been merely a soft patch. The survey found new order growth slowing and hiring easing, while companies are less optimistic about the future. However, it also indicated that businesses across the bloc were hindered by an unusually high number of public holidays.

“The May PMI brought yet another set of disappointing survey results, though once again a note of caution is required when interpreting the findings,” said Chris Williamson, chief business economist at HIS Markit.

Whatever the cause, the survey suggests that second-quarter growth won’t beat the first quarter’s 0.4 per cent. That was down on the 0.7 per cent seen during the previous three quarters, which had helped the region expand by a decade-high rate of 2.5 per cent during 2017.

Most economists had thought the first-quarter slowdown was a blip, due to some bad weather and even an outbreak of flu in Germany.

Wednesday’s survey suggests the slowdown may be more protracted and could be due to the euro, which raised the cost of eurozone exports.

“At this point we are still comfortable with our recent downward revision of the 2018 GDP growth outlook to 2.2 per cent, but downside risks are mounting,” said Moritz Degler, an economist at Oxford Economics.

The euro was down a further 0.5 per cent at $1.1723 and near 2018 lows as the weakness in the economic data is likely to raise questions over when the European Central Bank will end its bond-buying stimulus program. That in turn will affect how soon it joins its peers, notably the U.S. Federal Reserve, in raising its benchmark interest rate, currently at 0 per cent.

The ECB has indicated it could ease off stimulus further once inflation gets back to its goal of just below 2 per cent but so far inflation has remained stubbornly low — in the year to April, consumer prices were up a mere 1.2 per cent.

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Economy

Erdogan Is Threatening Israel With Sanctions – While Turkish Economy Tanks

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The Turkish economy is going through a very tough time, and many of the reasons stem from the behavior of its leader, President Recep Tayyip Erdogan.

He has been president since 2014, following 11 years as prime minister. This makes him one of the longest-serving elected leaders of any major country. Russian President Vladimir Putin, for example, surpasses him by just three years.

To be clear, Turkey’s economy has grown rapidly since the end of the global financial crisis a decade ago. Its annual growth rate ranged from 4.8 to 11 percent, before slowing to 3.2 percent in 2016, then rebounding to 7 percent in 2017. It has benefited from a surge of construction fueled by generous credit.

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Nevertheless, this relative boom is being threatened by the policies of the president, who is seeking to centralize power. This distances Turkey’s system of government from democracy, and its economy from the free market.

Erdogan exploited the failed coup of July 2016 to declare a state of emergency. Last month, the Turkish parliament extended the state of emergency, and Erdogan called snap elections that will take place on June 24 – some 18 months earlier than planned. Given his emergency powers, his control of the media and state institutions, and his rising popularity among conservative voters, he is expected to breeze through this election, which no one expects to be fair.

Even so, his desire for centralization is rattling both local and foreign investors. The Turkish lira fell 14 percent between March 14 and May 21, and it has fallen by 52 percent since Erdogan was inaugurated as president in August 2014. Moreover, inflation has soared during Erdogan’s presidency: From about 7 percent when he took office to 13 percent at the end of 2017 (though it moderated slightly, to 10.9 percent, last month).

Traders working at their desks on the floor of the Borsa Istanbul, May 22, 2018.OZAN KOSE/AFP

Turkish bonds are also collapsing. According to Bloomberg, yields on 10-year, lira-denominated government bonds are higher than yields on bonds issued by the governments of Nigeria, Pakistan and Lebanon. Turkish bonds have fallen more sharply than those of any other of the world’s 27 emerging economies.

Turkey’s trade deficit has been steadily widening as well, as has its current account deficit (which includes both the balance of trade and the balance of capital transfers). And all of these will weigh on its economy over time.

The fall of the lira and the high inflation rate are two of Erdogan’s biggest weak points – and the reason is his vigorous crackdown on monetary policy. Erdogan previously claimed that the central bank’s high interest rates are the reason for high inflation, and he repeated this claim in an interview in mid-May that rattled the markets.

Rumor has it that the governor of Turkey’s central bank plans to resign, and market players joke that after the June election, Erdogan himself will take over as the bank’s governor.

Meanwhile, Erdogan is investing in grandiose infrastructure projects such as bridges, dams and roads, which contribute both to growth and employment, and to his own glorification.

The Turkish government’s threats to sever trade ties with Israel appear to be disconnected from the Turkish economy. Erdogan cites Israel’s treatment of the Palestinians as the reason for his proposed boycott, and his rhetoric is reminiscent of those Iranian leaders who, beyond the talking, also finance terrorist activity against Israel.

During recent demonstrations against the Tehran regime, Iranians protested that their government invests money and energy in the Palestinian issue and in promoting anti-Israel terror, instead of improving its citizens’ day-to-day economic situation.

But for now, the Turks’ situation in general, and their economic situation in particular, is much better than that of the Iranians. So, the chances of demonstrators demanding that the government forget Israel and focus on the Turkish economy seem slim.

Turkey and Israel have a fairly close trading relationship. In 2016, Turkey’s exports to Israel totaled $2.96 billion, out of total exports of $142.5 billion. In other words, 2.1 percent of Turkey’s total exports go to Israel.

But Turkey has a trade deficit with most of its trading partners, and Israel is exceptional in this regard: Turkey exports more to Israel than it imports from it. Last year, the gap stood at $1.9 billion. In theory, therefore, halting trade with Israel would expand Turkey’s trade deficit by $1.9 billion.

Erdogan appears to want to entrench his rule and amend the Turkish constitution before the country’s financial woes infect the broader economy and cause it to collapse. His anti-Israel rhetoric won’t hurt him in the election.

He has also been campaigning beyond Turkey’s borders, using his familiar rhetoric of intimidation. On Sunday, he spoke to 15,000 Turkish migrant workers from throughout Europe in Sarajevo. He told them the European Union is sabotaging Turkey and that European democracy has failed.

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Euro-Area Economy Awaits Rebound Suppressed by Temporary Factors

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The euro-area economic rebound expected this quarter remains out of reach for now.

After bad weather, strikes and a flu epidemic weighed on growth at the start of the year, manufacturing and services suffered another setback in May, when an unusual number of public holidays damped orders. In a sign that investors are getting impatient with the 19-nation economy, the single currency fell to the lowest level since November.

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For European Central Bank officials preparing to set out the future path for monetary policy, the report may mean delaying a decision to scale back unprecedented support until they can better judge the region’s economic health. So far, Governing Council members have expressed confidence that the growth and inflation outlook hasn’t been fundamentally derailed.

In May, new order growth in the private sector weakened, hiring and backlogs of work showed slower rates of increase and companies became less optimistic about the outlook, according to IHS Markit. Its composite Purchasing Managers’ Index fell to an 18-month low of 54.1, weaker than economists had forecast.

View Challenged

This will “challenge the view that the economy is experiencing only a temporary soft spot,” said Anders Svendsen, an economist at Nordea Markets in Copenhagen. “The numbers do strengthen our view that the June meeting will come too early, and the ECB will wait until the July meeting before making the next important decisions on the future of its monetary policy.”

The euro was down 0.4 percent at 11:05 a.m. Frankfurt time, trading at $1.1727.

“Some of the fog will hopefully lift with the June PMI data,” said Chris Williamson, chief business economist at IHS Markit.

Preliminary figures will be published on June 22, a week after the ECB holds its next policy meeting. Officials have indicated in the past that they saw scope to wait until July to decide on their bond-buying program. Asset purchases are currently set to expire in September, although they could be extended if warranted.

Williamson said that activity in euro-area manufacturing and services signals the economy is currently expanding at a quarterly pace of just over 0.4 percent. That would match first-quarter growth but it’s below the rates seen in 2017.

“It’s also becoming increasingly evident that underlying growth momentum has slowed,” Williamson said. “More expensive oil and rising wages are meanwhile continuing to push companies’ costs higher, but weak final demand means firms are struggling to pass these higher costs onto customers.”

— With assistance by Mark Evans, and Harumi Ichikura

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