North firms have adapted to the age of recession

Apr 15 2009 by Iain Laing, The Journal

As the recession deepens, we take the temperature of the North East economy with the North Business Barometer. It shows the region is deeply affected by the economic slowdown but by no means moribund. The survey, conducted by Newcastle Business School for nebusiness, is the most detailed analysis of the opinions of the region’s biggest companies. Researchers spoke to a broad cross-section of firms in the Top 250 of the North East’s biggest businesses by turnover in the latest of the six-monthly studies. The results are not as desperate as many feared and as the authors explain here, they also give some signs of recovery in the not too distant future. Analysis by Jackie Harvey, professor of financial management, and Richard Slack, reader in accounting, at Newcastle Business School.

Unsurprisingly, the key business risks are still seen as being a tightening of credit (45% compared with 42% last November) and lower consumer spending (37.5% compared with 39% last November). It is evident there is no expectation that this situation is likely to improve in the near future.

Consistent with the national picture, production is unlikely to pick up, given the continued absence of consumer demand, a situation that is forecast to continue at least until the end of this year and probably longer. Despite all of the recent attempts to ease the flow of credit within the financial system, credit constraints and a lack of finance were identified by 62.5% of respondents (compared with only 28% in November) as an inhibiting factor in the event that expansion was contemplated. A new area included in this survey focused on the potential disruption arising from a breakdown in supply chain due to business failures elsewhere. Interestingly this was identified as a risk by a tenth of respondents. While failing to have the desired impact on credit availability, monetary easing has contributed to depreciation in the currency, a factor that was commented upon in our last survey.

It is unlikely that the pound will move significantly away from its current trading range, which will be beneficial for the 37.5% of businesses with overseas markets. The impression gained is that the major adjustments in response to the recession may have taken place. However, there is no expectation of any great improvement until at least the end of 2009. It will be interesting to see if signs of recovery come through in our next survey at the end of the year.