Storm clouds are gathering for 2008
Analysis by Professor Brian Snowdon, Professor of Economics and International Business.
THESE are turbulent times for the world economy. Rising commodity prices, driven by demand from emerging economies, have raised inflation expectations.
At the same time, gloomy economic news emerging from both the US and UK housing markets, an expected recession in the thirteen trillion dollar United States economy, and continuing turmoil in the financial markets, has persuaded a majority of economists that the real economy in the UK is unlikely to escape unscathed during 2008. Most informed commentators, including Richard Lambert, director-general of the CBI, expect at least a growth slowdown in the UK. With economic storm clouds gathering, the current barometer survey of North East Business Conditions makes for interesting reading.
In the September 2007 barometer, I noted an improvement in confidence compared to that of the March 2007 survey. However, since the barometer was conducted in September last year, there has been a substantial deterioration in the global economic environment. Has North East business confidence been adversely influenced by the continuous stream of pessimistic economic news? How do business leaders in the North East view recent developments?
With respect to the impact of recent gloomy economic forecasts, perhaps surprisingly, 49% of respondents remain optimistic about their own business prospects for 2008. A further 10% report a minor decline in confidence, with 22% reporting a strong negative influence. With respect to turnover, 59% remain confident of a moderate increase with only 7% expecting a fall. Over 70% expect their employment levels to remain stable or increase slightly, with 17% expecting a small decline. Not surprisingly, 76% of business leaders would welcome further cuts in interest rates by the Bank of England.
Overall, while the current barometer survey provides some evidence of increasing concern about economic prospects in 2008, the North East business climate remains remarkably upbeat given the international economic climate. However, a strong word of warning. Given the transmission lags that are present in any economic system, I would not expect the real sector of the UK economy to feel the impact of any growth slowdown until later this year. While continued growth in the BRIC economies (Brazil, Russia, India and China) may offset the impact of a US recession, as the survey indicates, the main market for the majority of North East firms remains local and national. The forthcoming September 2008 survey should provide a much clearer view of how things are shaping up.
