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In this week’s Commercial Awareness update, we discuss the economic performance of the Eurozone, the risks of Huawei and Facebook, J.P. Morgan new cryptocurrency and a boost for the insurance industry.
Germany narrowly escape a recession
Europe’s largest economy narrowly avoided dropping into recession at the end of 2018, as they recorded 0% growth for the final quarter. A recession is usually defined as two consecutive quarters of negative growth. In the third quarter, the German economy shrank by 0.2%, amid concerns over the global economy and falling car sales in the country. Political uncertainty and low water levels in the Rhine have also been attributed to slow economic growth.
The Eurozone’s growth has been strong over the past couple of years, but this has subdued recently with Germany almost dipping into a recession during 2018 and Italy actually doing so in the same period. In the second half of 2018, the region grew slower than 0.2%, which has caused the Euro to start losing value against the dollar in recent weeks. The worry is that the slowdown is worse than previously thought. In response, the European Central Bank is considering injecting capital into European economies through long-term loans.
The economic news in Britain isn’t exactly positive either, with the dominant service sector showing stalling signs. Many companies appear to be holding off on activity and delaying business to see what happens with Brexit negotiations in the coming weeks, leading to a six-year-low in activity. The IHS Markit index saw activity fall from 51.3 in December to 50.2 in January. The pound fell against the dollar on this news.
Companies to watch
Chinese technology giant, Huawei, has been declared a risk by the US, with several governments including Australia and New Zealand, blocking telecom companies from using Huawei in next generation 5G mobile networks. Huawei has been suspected of being used as a proxy by the Chinese government in order to spy on rival nations. The technology company has grown rapidly, currently capturing 16% of the global market, making it the third largest supplier mobile phone supplier after Samsung and Apple. However in the UK, cyber security chiefs have declared that any risk posed by Huawei in UK telecoms projects can be managed.
The National Cyber Security Centre (NCSC) has advised that companies should keep Huawei out of the core of 5G, but noted it is fine to use its equipment as part of the mix of suppliers. The majority of the UK’s mobile phone networks have been working and continue to work with Huawei on developing their 5G networks. The hostility towards Huawei comes with a context of heightened tensions between the US and China with Trump accusing Beijing of unfair trade practices. The UK, however, is keen to maintain a good trading relationship with China, particularly with Brexit upcoming.
Social media giant, Facebook, needs stricter regulation in order to combat fake news, a Commons Committee has declared. The inquiry, conducted by the Digital, Culture, Media and Sport Committee, focused on Facebook’s business practices before and after the Cambridge Analytica scandal. The committee stated that Mark Zuckerberg, the firm’s founder, failed to display “leadership or personal responsibility” over fake news, and that the media platform even put democracy at risk through allowing voters to be targeted with disinformation.
The report has called for tech companies to have a compulsory code of ethics to be overseen by an independent regulator, for the regulator to be given powers to launch legal action if companies breach the code, and for social media companies to be forced to take down known sources of harmful content and disinformation, along with much more. The committee stated that “big tech companies are failing in the duty of care they owe to their users”. Facebook has responded to the report by stating it is open to “meaningful regulation” and supports “the committee’s recommendation for electoral law reform.” However, they disagreed with the allegation that they had not responded to the concerns over disinformation. They stated they have made significant changes to the use of political ads on their site, going so far as to say “no other channel for political advertising is as transparent and offers the tools that we do”.
J.P. Morgan became the first major US bank to announce the creation of their own cryptocurrency to handle some of its cross-border transactions. The new JPMCoin isn’t accessible for the public to trade and will be used initially for a small number of payments with their clients. They hail the benefit of making money transfers quicker and therefore needing to hold less capital as the key reason for the move.
Many in the cryptocurrency world suggest that the lack of permissionless access to the currency means it isn’t strictly a cryptocurrency in its purest sense - instead it’s an internal payment system similar to those that other banks have. That all being said, J.P. Morgan’s willingness to embrace the blockchain technology could be a sign of further advances in the cryptocurrency industry. Bitcoin and other major cryptocurrencies have seen big drops in value since their peak around eighteen months ago.
Germain insurance giant, Allianz, announced last week that its operating profit was its highest in their history, reaching €11.5bn. The company almost exceeded their target for the year, which was set at s between €10.6bn and €11.6bn. Allianz stated that the growth could be attributed to its property-casualty business segment, where there was a 13.3% reported jump in operating profit, and an improved expense ratio, with lower claims from natural disasters and premium growth. With the announcement of such strong results, Allianz boosted its dividend by 12.5% to €9 a share. The Chief Executive officer of Allianz UK, Jon Dye, stated that he was “satisfied with the financial performance delivered in 2018”, with profits up 42.5% from 2017. He went on to state that the company faced significant challenges in 2018, including competition and rising claims, but these results prove that the insurance industry is currently going strong.
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