By Graeme Davies
Last week’s long awaited decision by the US Federal Reserve to launch a third round of quantitative easing gave an instant boost to global equities as share prices across the world rose in response.
But what effect will it have on the US economy, and what opportunities will it open up for companies, like many in Wales, who rely on the strength of the US economy for their export business?
What the latest round of quantitative easing undoubtedly did do was signal the Fed’s determination to boost the US economy and prevent it from slipping back into recession, as some commentators had begun to fear was likely to happen.
Indeed, the latest round of money printing is effectively open ended and will continue until US unemployment starts to move decisively in the right direction. As such, it is hoped that it will give sustained and significant support to the US economy.
This should give US companies confidence to invest in their businesses and could also feed through to US consumers, which could create a virtuous circle that will benefit those companies who sell into the US economy.
This is particularly important as the US is the single most important export market for Welsh companies, worth more than £2bn to the Welsh economy a year.
For the numerous Welsh businesses who sell into the US, in particular engineering and aerospace companies who rely on a healthy US economy, the injection of further money and confidence into the US economy has to be good news.
The Welsh aviation industry employs more than 20,000 people and includes names such as GE Aviation and General Dynamics.
Civil aviation has been a particularly buoyant sector in recent years with both Boeing and Airbus launching next-generation jets, which have secured huge forward orders, especially in emerging markets.
Thus, the Welsh aviation sector is likely to see strong demand – and when an industry is infused with confidence the effect ripples out to smaller business that supply services on a local level.
But the Welsh aviation sector is not a huge exporter, unlike the engineering sector, which accounts for more than three times as many Welsh jobs as aviation, albeit in a far more fragmented way. And Engineering was the second biggest export industry in Wales in 2011, worth a shade less than £3.9bn, which was an 11.5 per cent gain on the previous year.
The latest attempt at boosting the flagging US economy will hopefully ripple out to the wider global economy and this is likely to be felt in Wales.
But quantitative easing is by no means guaranteed to succeed and the US faces significant challenges in the coming months, not least the much mooted ‘fiscal cliff’ that threatens if US politicians cannot come to agreement on the country’s budget.
The different sides of the political divide are currently facing-off in Washington, exacerbated by the Presidential election, over how to move forward. A failure to come up with a budget agreement could lead to a raft of automatic budget cuts, which could result in a huge drag on GDP growth.