Focus on fundamentals for unforeseeable future
Jan 6 2010 by Peter McCusker, The Journal
IT is true to say that economically the last 12 months have proven to be tough for the North as well the whole of the UK, as we were warned to plan for a deep and prolonged recession.
As we weather the storm and move into 2010, it is evident there is something about the phrase “Northern grit” that highlights the region’s determination, tenacity and willingness to try harder to succeed and push through the difficult times.
In the North, excellence in business comes from straight-talking, hard-working business people – they are the region’s most important assets and it is these attributes which will enable the region to prepare for the upturn and take on new opportunities in 2010 and beyond.
Green shoots are being talked about in the Press. While there remains a degree of uncertainty about the economic outlook – in part driven by this year’s General Election – at PricewaterhouseCoopers, our surveys and research show us that there is some cause for optimism. Though not enough to stop a rise in unemployment figures to around three million by the end of 2010 and UK GDP is expected to rise to just under 1% in 2010, compared with a decline of 4.75% in 2009.
The PwC enterprising survey has found that the majority of private businesses in the region – 80% – predict that, rather than decline, their business situation will improve or stay the same in the next 12 months. Encouragingly, nearly half – 41% – expect things to get better this year, and the level of optimism increases significantly with time. Two thirds of business leaders in the North say the outlook for their business will be better in two years.
Businesses need to stay ahead and not lose focus on the fundamentals as we come out of the recession. There are some key disciplines businesses should focus on to ensure they can weather the remainder of the storm.
They should continue to assess their customer’s needs, remain focused on their cost base, communicate with all their financial stakeholders, look after their people and, most importantly, manage their cash.
Not only is looking after staff important, a pipeline of talent is critical – 97% of CEOs in PwC’s 12th annual global CEO survey said that having access to talent and key skills was the most crucial factor for their long-term business strategy. At PwC, we have held our nerve and recruited 109 graduates in the North, believing that it is vital to invest in our firm’s future so that we have the right balance of skills and resources to support our clients as we move out of the downturn.
With regards to the Government and public sector, we see that public spending growth will remain positive in 2009 and 2010, but will need to be cut back sharply in the medium term to bring under control a budget deficit that looks likely to be somewhat above the Treasury’s £175 billion projection for 2009/10.
Business investment growth is expected to remain weak, although this should gradually reverse during 2010.
We recommend that businesses stress test their plans and valuations against an alternative “prolonged recession” scenario, in which negative growth continues in 2010. But an upside “strong recovery” scenario, where growth rebounds to above trend levels by the end of 2010, can also not be ruled out.
Steve Denison, Northern chairman, PricewaterhouseCoopers.
