Gloom ahead – but we could be first to recover

Jan 19 2009 by Peter McCusker, The Journal

ONE of the country’s leading economists lit a long-term torch of optimism for the region, as the gloomiest recent economic survey predicted 2009 will see the sharpest fall in GDP for 60 years.

Unemployment will rise to over 3.25m by the end of 2010, consumer spending will decline by 2.5% and house prices will fall by a further 22% over the next 18 months.

The Ernst & Young ITEM survey predicts GDP will contract by 2.7% in 2009 with a further contraction of 0.5% in 2010 and that without additional Government intervention a deep recession could evolve into a depression.

However with inflation and interest rates both staying close to zero pensioners and those on tracker mortgages will benefit.

Peter Spencer, the chief economic adviser to the ITEM Club, believes sterling’s depressed value means that when the recovery comes Nissan and the North East’s other manufacturers will be among the first to benefit.

He said: “In the long-term the British economy will have to change. We will have to save more, spend less and begin exporting.

“In 2010 when signs of a recovery will emerge manufacturers are going to be in the best position and Nissan, the most efficient car-making plant in Europe, will be the first off the mark.

“The world has changed. It’s not smart to be borrowers anymore and we are going to have to start exporting.”

Nissan recently announced it was axing 1,200 of the jobs of its 5,000 workers at Washington, but even so manufacturing still employs 20% of the region’s total workforce compared to a national average of 10%.

The region has also witnessed a boom in exports with over £13bn of goods and services now exported annually – an increase of over 20% in the last two years.

ITEM expects world trade to fall by 2% this year, while exports are likely to fall back by 1.5% but it expects international trade next year to rise.

Despite the overwhelming predictions of gloom ITEM say that the Government’s actions since September have been constructive and helpful.

Mr Spencer said: “It is easy to criticise and conclude that none of the Government’s policies are working.

“However, we must not lose sight of the fact that they have prevented the collapse of the monetary system as we know it. But, more needs to be done urgently otherwise the flow of credit will remain frozen and the economy will remain in recession.”