SIMON WATKINS: Slowdown now occurring in emerging markets is most significant cloud on economic horizon and its effects are being felt

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The world’s emerging markets have been the saviour of the global economy for years, providing rapid growth to boost international trade and providing cheap exports which have pulled down inflation in the West. 

The slowdown now occurring in those markets is the most significant cloud on the economic horizon and its effects are being felt.

As we report this week, oil giant BP will take a major hit to its profits next week because of the drop in the price of oil over recent months – a good thing for drivers but a headache for the oil giants, who are having to slash costs to make ends meet. 

Hit hard: The flood of cheap steel from China is due to the slackening of demand for the raw material in China itself

That fall in the oil price is significantly due to falling demand for fuel from those emerging economies. The crisis engulfing steel is also a symptom. 

Green taxes on big industry and punitive business rates are a major culprit, but the flood of cheap steel from China is another key cause and that is due to the slackening of demand for the raw material in China itself.

Finally, the regular survey of British company profit warnings from accountancy giant EY shows a spike in those profit alerts, with the emerging market slowdown cited as one of the causes.

The economic cycle cannot be abolished and at some point it was inevitable that those growth countries would not be able to keep up their breakneck pace. But in a ideal world, by the time that happened the West would have dragged itself out of its own doldrums and be able to weather the emerging market turbulence.

Europe is nowhere near such a state and even Britain, which has outperformed its Continental peers in the past two years, is not quite robust enough for anyone to be complacent. We are not facing a gale-force storm yet, but the seas are getting choppier.

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The Competition and Markets Authority’s report on banking is another missed opportunity to reform the sector. Sadly, the focus appears to have been on remedies that play to an easy consumer audience, but do not address the core failings. Easier systems for comparing the relative costs of bank accounts was one proposal. This is fine, but as a solution for competition in banking, it is a glib proposal that will not address the real obstacles to new banks challenging established players.

The real issues concern the regulatory and taxation system on banks which – while designed to tame the big boys – has also heaped costs and hurdles in front of the newcomers. Principal among these are the capital rules which treat small banks, such as Tesco Bank, as though they were as much of a risk to the economy as the biggest operations like RBS. This needs an urgent rethink.

In the meantime, all we will get is another price comparison website.