Finance

New Year Prospects..

A WEEK ago I was able to chronicle the many favourable features of the past year, and today if I were to write in the spirit which pervaded the Stock Markets at the close of 1934 I should be indulging in the most optimistic forecasts with regard to 1935. Both on Christmas Eve and New Year's Eve, notwithstanding a comparatively small attendance in the House owing to the holidays, prices in the Stock Markets were buoyant in nearly all departments. The conspicuous feature was the continued rise in British Funds and kindred securities, which left off on December 31st near to the highest of the year.

With regard to the prospects for the current year, I shall perhaps present the situation in the fairest manner if I set out first the extremely optimistic views held on the Stock Exchange, and then at the close of the article suggest some few directions where I think that these views call for some qualification.

In the first place dealers on the Stock Exchange are counting with confidence upon a continuance of cheap money, and a still further rise in Gilt-edged securities. The effect of this advance, it is considered, must be felt in other sections of the markets, so that for the most part the City is looking for a still further rise in nearly all public securities, especially perhaps during the first half of the year. -

INTERNATIONAL OUTLOOK.

With regard to the international situation the City is not entirely unmindful of the critical situation which may conceivably be created in connexion with the settle- ment of the Saar problem, though even as regards that there is a more hopeful feeling than existed a few months ago. Moreover, rightly or wrongly, the City inclines to the belief that despite the many difficulties to be surmounted and the many problems to be solved the year 1935 will see some straightening out of the tangle of European politics, with a more definite move in the direction of international co-operation. Should these developments be of a definitely favourable character, it is easy to see that a considerable stimulus would be given to confidence and therefore to commercial and financial activities.

HOME TRADE.

As regards the prospects for home trade the Stock Markets are particularly hopeful. In that sphere con- siderable emphasis is laid upon the likelihood that the. New Year will see some large outlays by the Govern- ment in connexion with relief works for the unemployed, while it is thought that spending activities will be further stimulated during the first half of the year by the preparations for, and finally the celebration of, the King's Silver Jubilee. The ultra-optimists are even hopeful too with regard to Budget prospects, and indulge in prophecies as to the possibility of further tax concessions, a matter to which I make a further reference later.

Hopefulness with regard to the domestic trade outlook is also increased by some definite signs of improvement at the end of 1934 even in such depressed industries as cotton and ship-building. Some of the recent reports of leading industrial concerns bear testimony to greater earning power through increased efficiency, while it is generally recognized that in -some of the staple industries, including iron and steel, recent fusions have eliminated a good' deal of wasteful competition, and have also resulted in greater efficiency. Satisfactory Railway. Traffics have also testified to increased spending power on the part of the community, and now at the beginning of the year there are indications that the Railways may be expending large sums on renewals and improvez, ments, thus promising a still further reduction in the numbers of unemployed. In view, therefore, of all these possible factors, it is not difficult to comprehend the optimism with regard to New Year prospects.

SOME QUALIFICATIONS.

And now for some of the qualifications which I think call for consideration. It is not that find myself in (Continued on page 23.)

Finance

(Continued from page 26.) disagreement with the numerous opinions on which favour- able expectations of the New Year are based, but at the same time I feel that there are some important " ifs " to be borne in mind. Those who have given most thought to the subject will certainly echo the hopes of favourable developments in the international political situation, and will to some extent share the general expectations of improvement. Nevertheless, these external influences are something beyond our own control, and it may be well to bear in mind that whereas, say a couple of years ago, apprehensions of a disturbance of international peace were reflected to some extent in low prices of securities, that is not so today, and anything in the shape of serious political alarms would undoubtedly have a considerable effect upon the Stock Markets. More perhaps upon the Stock Markets than upon trade, for in spite of the general feeling of hope- fulness I am inclined to think that uncertainty with regard to the political outlook, plus the chaotic condition of the Foreign Exchanges, is still largely responsible for the slackness of international trade. Nor must it be forgotten that as the year proceeds the time for the General Election—always a disturbing influence—will be drawing nearer.

THE TRADE OUTLOOK.

And this causes me to give the reminder that in the hopeful views taken of the trade outlook there is perhaps too great a tendency to dwell upon the improvement in our home trade, and too little upon the slackness of international trade. Yet, as I pointed out last week, the actual economic position of the country as reflected in the trade balance has worsened rather than improved during the past year. Increased purchasing activity at home has not been confined to articles produced or manufactured in this country, a great increase in the volume of our imports having caused a considerable rise in the visible adverse trade balance. This develop- ment in a country which is still dependent upon its exports to pay for its imports of foodstuffs and raw materials is not a favourable one.

THE NEXT BUDGET.

Once more, too, a word of caution is I think necessary With regard to the Budget prospects. " For the first nine months of the current fiscal year, the deficit is fully £12,000,000 greater than at the corresponding date a year ago, and although it is true that that year closed with a realized surplus of £81,000,000, there are circum- stances which make it improbable that there will be any such large surplus at the end of next March. In the first place the Chancellor of the Exchequer will suffer a considerable diminution in income tax revenue during the next three months by reason of the reduction of 6d. in the tax, while in the second place expenditure seems likely to go far ahead of the original Budget estimates. I think, however, it may still fairly be hoped that the financial year will close with a small surplus, and the point is a vital one, for I attribute no small part of the recovery of the last two years to a growth in public confidence, which in its turn has been connected with the sounder condition of the national finances.

I have felt it right to refer to these qualifying considera- tions when recording the general optimism of the City with regard to the prospects of the New Year. Never- theless, I am inclined to believe, that for the first half of the year at all events there is likely to be a considerable increase in activity, both in finance and in home trade, while as regards the second half of the year much must ' depend upon international developments, not excepting the financial and economic developments in the United States. If these should be favourable, then there is good reason for the belief that the expected activity for the early part of the year may be prolonged to its close.

ARTHUR W. KIDDY.