The best business advice, opinion, news and expertise in Greater Manchester and further afield.

Wednesday, 11 January 2012

View From The Chamber

Dr Brian Sloan, Chief Economist at Greater Manchester Chamber of Commerce

This week the British Chambers of Commerce released the national Quarterly Economic Survey results indicating that there has been a further deterioration in the UK economic situation and there is likely to be a stagnation in the first quarter of 2012.

The BCC is keen to point out that these results do not necessarily indicate that a recession is a foregone conclusion. The concern with the national picture is that demand measures have weakened, particularly the domestic market, and exports are slowing. With uncertainty over future demand from consumers and the country’s largest export market the Eurozone, business confidence has weakened along with intentions to invest in the coming months.

A clear sign of this lack of business confidence is the increasing numbers of businesses operating at capacity, yet there is a lack of investment intentions to create more capacity. As businesses are holding back with investment they are also holding back on their recruitment plans, so national unemployment is likely to increase beyond the current 2.64 million.

But how does Greater Manchester compare with the national picture. We already know that the area outperformed the regional picture, and indeed Greater Manchester for this quarter is outperforming the national picture also. Demand in the domestic economy is stronger in Greater Manchester for manufacturing, despite the challenges faced in the construction sector, and service sector demand is stronger as a result of the city centre’s financial and professional services.

Export demand for manufacturing is similar to the national picture, although service sector export demand is weaker. Greater Manchester’s job creation has outpaced the national picture, though this is weakening moving forward and looking similar to the national picture. It would seem that business confidence in our area is weakening in the same way as the national results, and leading in turn to an unwillingness to invest. We have seen the impact of the Eurozone crisis over the last two quarters’ results for Greater Manchester, and there is continued uncertainty over how that will pan out, but there is uncertainty also over domestic demand by consumers moving ahead as unemployment continues to increase.

Future growth will only come from investment. The Government’s Autumn Statement announced a package of investment and support for businesses that we warmly welcomed. What we need now is for those words to be put into action and for money to reach businesses and projects to get underway as quickly as possible.

There have been delays with Regional Growth Fund monies reaching the successful bidders as a result of due diligence, delays that cannot be repeated. But we must also look at bringing forward major infrastructure projects that will help create the confidence for businesses to start-up here or encourage foreign investment, to create jobs knowing that they can move their freight and people easily and efficiently. Changes to employment legislation, lengthy and complex planning processes and skills also have an important role in supporting business confidence by creating an environment of certainty that supports, not hinders job creation.

A recession is by no means inevitable, and given the right support our region is better placed than most to meet the challenges ahead.

Friday, 6 January 2012

What's In Store For 2012?

Dr Brian Sloan, Chief Economist at Greater Manchester Chamber of Commerce, gives his predictions for the year ahead.

2012 is likely to be another challenging year for the economy. There will be another period of slow growth, certainly very weak in the first quarter as our Quarterly Economic Survey indicates. As a consequence job creation is also likely to be very much weaker, perhaps slightly negative. Growth in the future is going to rely heavily on exports and business investment. The latter looks unlikely to become significant in the near term as there is too much uncertainty and a lack of demand.

Rebalancing and shifting the economy towards exports cannot be done at the flick of a switch and the dependency on a number of trading partners for existing export market destinations is going to weigh heavily on potential growth prospects.

Interest rates are likely to remain at the historical low probably for the whole of 2012, though speculation about increases is likely to pick up towards the end of the year.

Inflation will fall in the new year as the VAT increase drops out of the measure, the CPI measure falling perhaps to 3.5% or below by March (published in April). As the year progresses inflation should fall further.

Household consumption has been the major contributor to growth since the end of the recession, though the rate of inflation at around 5% and wage increases running at around 2% is eroding real incomes, so that consumption is flat. Uncertainty over employment prospects as unemployment nudges higher is also weighing on demand. Household consumption is unlikely to pick up early in the new year and given the raft of pre-Christmas sales, indicating the challenge for already distressed retailers, we are likely to see some big names fail as margins have been squeezed by discounting.

Unemployment will rise further in the new year at the national level, and the regional performance is also likely to be one of increased unemployment as private sector job creation in the region has weakened considerably of late. The claimant count is almost certain to rise as a result of a shift from certain benefits to job seekers allowance, though there will also be an element of the increase attributable to further public sector losses and private sector losses. The private sector is not capable or willing at this stage to create jobs in the numbers required to offset the likely upward movement in the claimant count.

As a result of the Autumn Statement announcements and Regional Growth Fund successful bids we are now starting to see some investment coming through for businesses, transport and other infrastructure improvements, as well as support for construction projects that have planning permission. There is also the additional Regional Growth Fund money of £1bn. How quick these things will get moving is unclear and they are perhaps a little late in the day to hold off some damaging impacts on the economy in 2012.

Much will hinge on the success of the European Union agreements on the Eurozone EFSF fund, though issues about sovereign debt will be with us for some time to come as those countries such as Greece, Portugal, Spain and Italy attempt to refinance existing debt in the months/years ahead.