Mark Lamb | Sunday, 22 February 2009

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The magnificent G7

Weekly international investment round up to 20th February 2009

In the famous 1960s film ‘The Magnificent Seven’ a group of gunslingers join together to protect an undefended population against impending danger. Last weekend finance ministers of Japan, Italy, Canada, Germany, France, US and the UK, collectively known as the ‘G7’, gathered in Rome to ‘round the wagons in an attempt to avoid further economic carnage.
Collectively their countries represent around two-thirds of the world economy and while their defensive maneuvers are welcomed a cynic could be forgiven for stating their actions more closely resemble a bunch of cowboys trying to lock the stable door well and truly after ‘Trigger’ has bolted!
With financial bullets ricocheting above their cowering heads at least the finance ministers had the good sense to try and act like doctors in the middle of a gunfight rather than suicidal gunman and applied the medics’ principle of ‘Primum non nocere’, or ‘first, do no harm’. Collectively, the G7’s economy is in recession, in isolation each faces a major battle.
Japan’s export driven economy nosedived by 3.3% in the last quarter of 2008. When annulised, the period between October and December represents a fall of some 12.7% and is its worst period since the 1970’s. Like something out of a spaghetti western accusations that Japan’s Finance Minister, Shoichi Nakagawa, was drunk at a G7 press conference resulted in calls for his resignation and resulted in him having to fall on his sword.
Italy’s slumping economy and high public debt estimated at 108% of GDP has meant that the meeting’s hosts have been unable to announce any meaningful fiscal stimulus plan of their own for fear of pushing debt levels higher still and has raised further questions, however unlikely that it may now appear, about the possibility of Italy actually having to leave the Eurozone.
Thanks to having one of the soundest financial systems in the world Canada’s banks have avoided the worst of the credit crunch but their government has had to slash interest rates to just 1% in an attempt to boost internal demand and despite not having a property boom or being crippled by huge consumer debt Germany, which is heavily dependant upon exports, saw its economy shrink by 2.1% when compared to the previous quarter according to data issued by their Federal Statistics Office, representing the country’s worst quarter since reunification.
Although consumer spending in France is holding up reasonably well their economy minister, Christine Lagarde, recently stated that he expects a difficult first quarter of this year while the Anglo-Saxon economies of the US and the UK are desperately hoping their huge stimulus and rescue packages will save them from long and deep recessions.
While the G7’s focus was on damage limitation, investors may ultimately consider this to be a lost opportunity as it resulted in no new ideas and, unlike last year, the exclusion of Russia due largely to its evaporating energy muscle. When the chips are down surely eight united gunslingers are better than seven?
Just like the original filmgoers, investors are now left waiting for the sequel ‘The return of the seven.’

Mark Lamb is Head of Life at Citadel Insurance plc which is authorised to carry on general and long term business of insurance under the Insurance Business Act, 1998 and is regulated by the MFSA. Contact by email; mlamb@citadelplc.com Tel; 25579000. Website; www.citadelplc.com
This article does not intend to give investment advice and its contents should not be construed as such. Information in this article has been obtained from various public sources and is given by way of information only. Readers are always encouraged to seek financial advice before making any investment decision.

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