The years ahead: an economic outlook
Right now, as we enter the last quarter of 2017, most companies in business aviation are already thinking hard about 2018 and beyond. But making the right plans for even the next few months, let alone the next few years, can be very difficult when we seem to be surrounded by economic uncertainty.
That’s why, at PayNode, we were delighted to welcome Jeremy Cook, chief economist and head of currency strategy at foreign exchange leader WorldFirst, as our speaker at the CEO Breakfast Briefing we sponsored at this September’s Air Charter Expo (ACE) in London.
Here are just a few of Jeremy’s observations:
- The Trump administration has not invigorated the US economy/Wall Street as many people hoped or expected would happen. Many economists believe President Trump’s influence and authority is already fading and could be very weak in a year.
- The Chinese economy remains strong.
- The European Union (EU) economy is also currently particularly strong, although the European way is often to pay off debt with more debt. Unemployment rates, on average, are higher in the EU than the UK or US. The euro (€) itself should continue to strengthen in 2017.
- Brexit is the defining political characteristic of the UK at the moment. Nearly 25% of the Brexit negotiating time has already passed, with the UK’s exit from the EU scheduled for March 29 2019. Nonetheless, few people believe nearly 25% of the necessary work has been completed. Ultimately, as with every negotiation, nothing is agreed until everything is agreed. And, thinking positively, just because there does not seem to be agreement now does not mean there will be no agreement in the future.
- Regardless of how Brexit unfolds, the European Aviation Safety Agency (EASA) will remain the dominant body in matters of EU aerospace safety regulation, including the design, production and operation of aircraft and flight crew licensing.
- Switzerland’s bilateral agreement with the EU is unpopular in Brussels, having taken a long time to arrange and implement, and is therefore unlikely to be replicated with the UK.
- The UK could seek bilateral agreements with individual EU member states but these agreements will take time to arrange (and the UK does not have much time).
- Brexit will impact the financing of many industries, meaning the intelligent management of currency and translation risk is now more crucial than ever. (Put simply, currency risk is the potential risk of loss as a result of fluctuating foreign exchange rates. Translation risk is the exchange rate risk associated with companies that deal in foreign currencies or list foreign assets on their balance sheets.) For some businesses operating internationally, effective hedging to minimise or eliminate foreign exchange risk will be the difference between survival and failure.
- At present, the ‘passporting’ rights of UK companies after Brexit – which are basically the rights for a company registered in the European Economic Area (EEA) to conduct business in another EEA state without needing further authorisation – are very much in doubt.
- The aviation market is not yet being widely discussed in Brexit negotiations but could easily be one of the sectors most affected by the UK’s exit from the EU. A transitional deal is probable, allowing the UK access to the EU single market for goods and services – as well as aviation – for up to five years after 2019. But if no such transitional deal happens, the aviation industry will have to hope clear plans are agreed quickly.
- If the UK does not secure a good Brexit in terms of trade and for the aviation industry specifically, the UK aviation industry’s relationship with the US will become even more important than now. But if Brexit leads the UK and US to form closer ties in aviation, the EU is likely to harden, not soften, its borders. This EU/UK/US triangle must be resolved.
We’re sure you’ll find Jeremy’s thoughts useful as you plan for the years ahead. After all, business aviation’s pain points are often found in the inefficient handling of economic issues, driven by delayed or uninformed responses to wider market trends. But with the help of Jeremy’s insights, we hope you’ll be able to make the right financial decisions for your company’s future. And we’ll make a final observation – in these uncertain economic times, working with PayNode is definitely a smart choice.