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In this week’s Commercial Awareness update, we discuss the Italian economy, whether HS2 will go ahead, Hasbro acquiring Peppa Pig, the Amazon rainforest and the £1 billion to reform the British high street.
Economic uncertainty in Italy
Last week the Italian Prime Minister, Giuseppe Conte, resigned from his position as the political and economic crisis deepened in the country. After months of political in-fighting within government, the PM accused his minister and leader of their coalition party the League party, Matteo Salvini, of trying to bring down the government. Salvini’s League party are polling better than their partner, the Five Star party, so they are likely to do well if they are able to push through a snap election, which is now more likely with the PM resigning.
Italy’s government debt is a third more than its GDP, which is one of the highest in Europe and doesn’t compile with eurozone rules about debt. They did agree to work towards lowering their debt but, with these fresh political problems, that hasn’t materialised. Also, if there is an election, some politicians are proposing lowering taxes and increasing spending to reignite the Italian economy. This will increase borrowing and, if the economy doesn’t grow quickly, would result in an increase in their debt to GDP ratio.
European markets have been struggling in recent weeks with uncertainty over Brexit, the stagnating German economy and the Italian political turmoil causing investors to worry about the future. With the potential of an election or a new power sharing agreement in Italy, this could bring about a more moderate government, which will be favoured by the markets. This could explain why the markets didn’t dip as much as expected when the president resigned. However, the markets always struggle with uncertainty, so they will be looking for a solution sooner rather than later. Italy makes up 11.2% of the EU economy and is too big to bail out - another concern for the global markets.
Questions to ask yourself… What can Italy do to start reducing their debt? What would be the ideal outcome for market stability across Europe?
Things to think about this week
Britain’s most talked about construction project looks like it could be in some doubt after reports suggest a growing overspend and further resistance to the plan. The high speed railway project linking London, Birmingham, Manchester and Leeds was meant to cost £55.7 billion and connect the UK’s major business cities by 2032-33. However, it has now been revealed that it could be as much as £30 billion over budget and also behind schedule - something which a leaked report suggests was known back in 2016. A key part of the budget was the cost of purchasing all of the land and property which the rail line would run across. PwC suggest it was calculated on an ad-hoc manner and now many believe it will be hugely different to the original budget.
The project is under more scrutiny than ever before, with many questioning whether the time saving on journeys is worth the resource and cost. The government has launched a review to examine these costs and benefits, which will end in a “go or no-go” decision by the end of the year.
The US toy making giant Hasbro announced last week they have acquired British company Entertainment One, the company which owns Peppa Pig. It’s another foreign takeover of a British company which is happening with increased regularity recently as British companies are considered good value due to the weak pound. Just last week, pub and alcohol company Greene King was purchased by Hong Kong’s richest family in a deal worth £4.6 billion.
Entertainment One distributes TV shows and films as well as producing films, including the most recent Oscar winner Green Book. Their key asset is Peppa Pig, which is a huge global brand, especially popular in the US and China. It isn’t just TV and films in Entertainment One’s portfolio, they also own music labels such as Death Row Records. The move shows Hasbro’s continuous desire to diversify outside of the toy market and expand their market value, which currently stands at $14 billion. On the news, Entertainment One’s shares increased by a third.
Forest fires across the Amazon rainforest have hit the media spotlight in the last two weeks after a sharp rise in the number of blazes across Brazil. Satellite data shows there have been 41,000 fires in the Amazon region this year alone, with many of them started by farmers clearing existing land. However, the increased media coverage and the sharp rise in fires has led to the G7 countries taking action and offering £16 million as part of a global initiative to protect the Amazon. However, Brazil has not reacted well to this offer, accusing French President Macron (the most vocal of the G7 leaders) of colonial thinking, and it is likely to be rejected by the country.
Brazil’s right wing President, Jair Bolsonaro, has a reputation for controversial opinions and isn’t the most environmentally-minded world leader. After pressure from the G7 countries and Macron actually suggesting inaction could lead them to block trade with Brazil, the army has been sent in by Bolsonaro with the aim to put out fires across the region.
Questions to ask yourself… Should the G7 be able to have more influence over what happens with the Amazon rainforest despite it being in Brazil? What are the potential problems with diversifying a company’s offering? Should Britain go ahead with HS2?
£1 billion to reform high streets
We’ve talked about the decline of the high street and the number of shops shutting down a few times in this update recently, so I wanted to bring it all together as the government announced further funding to renovate the traditional high street. Last year, a record 2,481 high street shops closed down and more shops are now empty than ever before. More customers are shopping online, which is having an obvious impact, but there’s more to the problem than that. Companies have had to deal with rising rents, increases to minimum wages and changes in regulation, for instance the GDPR, all of which cut profits and makes operating on the highstreet more resource intensive.
To combat this decline, the government last week pledged a further £325 million to the Future High Streets Fund, taking it to £1 billion to be spread across 50 town centres. The money will be rolled out on improving transport access, converting empty shops into houses and offer essential services within the community.
Questions to ask yourself… Do you think the high street will continue its decline regardless of the investment? How can shop differential themselves in the market?
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