Reasons to be cheerful
There are more tough times to come, but reason also to expect some positives to appear in the North East economy, says Paul Woolston.
KEEN observers will note, if they look back to my corresponding article this time last year, that I was proved to be too optimistic. Recession has hit deeper than I had hoped.
Indeed, our economists at PricewaterhouseCoopers recently warned that companies need to plan for a deep and prolonged recession.
The main scenario in the latest PwC UK Economic Outlook report is for GDP to fall by more than 3% in 2009, followed by average GDP growth of around zero in 2010.
The report sees the recession continuing throughout 2009 and into early 2010, with a peak to trough fall in UK GDP of around 4.5% between Q2 2008 and Q1 2010, similar to the early 1980s recession - and worse than the mid-1970s or early 1990s downturns.
Risks are weighted to the downside and businesses are recommended to stress-test their plans and valuations against a pessimistic scenario of an even deeper and more prolonged slump in which GDP falls by around 5% this year, and a further 2% fall in 2010.
Consumer spending is forecast to fall by around 3% this year, due to the severe squeeze from high debt levels, tighter credit conditions, falling housing wealth and rising unemployment.
A further real decline of around 0.75% in consumer spending is expected in 2010.
However, there are some positives to be taken; in particular, there are signs that manufacturers in the region are responding positively to the downturn.
This is seen in the lengths that regional employers are going to in order to minimise redundancies and retain vital knowledge and expertise.
But there is also an important opportunity for government to support employers so that talent needed to sustain the manufacturing will be retained.
In the months ahead there are some important challenges for North East manufacturers, which they can turn to their advantage.
We may now be entering a prolonged period of sterling weakness. If so, manufacturers should take the opportunity to push for more productivity improvements.
They should also focus even more closely on specialisation - developing products for niche markets that are backed by significant technical know-how.
They should in invest in green product development in areas like clean technologies and renewable energy generation, where there is a significant but limited time window to build on our R&D strength, and steal a march on the competition.
Paul Woolston is senior partner, PricewaterhouseCoopers LLP, Newcastle.
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