Transcript QES Review - Professor Brian Morgan

South Wales Chamber
Quarterly Economic Survey
2009 Q4:
Implications for the Welsh Economy
Professor Brian Morgan
UWIC
South Wales Chamber
Miskin Manor
Tuesday12th January 2010
S W Chamber Survey: Summary
2009 Q4
2009 Q3
increase decrease
increase decrease
sales
30
28
33
36
orders
23
26
26
33
worforce nxt Q
32
11
25
13
cash flow
36
40
24
44
prices
23
20
28
18
investment
24
16
19
18
optimisim sales
75
23
66
24
optimisim profits
64
27
58
28
No real Trends
• No clear pattern is emerging
• Sales and orders (particularly orders) have worsened
slightly since last quarter
• Also price expectations have decreased
• Employment expectations have improved slightly but
expectations for cash flow are ambivalent
• One aspect of the survey that has improved is
investment intentions and Business optimism :
• 75% are expecting improved sales in 2010 and 64%
improved profits
Cautious Optimism
• Separate surveys by Grant Thornton and Deloitte –
published yesterday – support this trend
• But, most quarterly changes are within the ‘standard of
error’ of samples of this size
• Also the comparisons are with some of the worst
quarters on record
• Other surveys claim that many businesses still worried
about a double dip recession
• So we have to go back to the underlying economic data
to see what is happening
We don’t have reliable
quarterly data for Wales
Source: FT
Wales GVA per head
74%
W
A
L
E
S
Relative GVA : UK = 100
1999 -2007
100
95
90
Wales
85
Scotland
Northern Ireland
80
75
70
1
2
3
4
5
6
7
8
9
10
Welsh Unemployment
120000
100000
80000
After 10 years of decline
Unemployment has doubled
In two years to over 80K
60000
Series1
40000
20000
0
Year 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
est
2009
Unemployment Rates
Aug 2008 to Aug 2009
•
•
•
Year
2009
2008
Wales
9.1%
5.9%
England
7.9%
5.9%
Scotland
7.1%
4.7%
N. Ireland
7.1%
4.3%
• The Welsh economy is suffering more than other regions
• Unemployment expected to keep on rising during 2010
• Youth unemployment is set to rise above 25%
– the under 25s are bearing the brunt of this recession
Other problems – (i) Bankruptcies
• A record number of people in England and Wales were
declared insolvent to the end of Oct 2009.
• For 2009 as a whole insolvencies will top 130,000 –
exceeding the previous high of 107K in 2006
• This is a 30% per cent rise on the same period a year
ago, and is the highest since the series began in 1960.
• Cause - Rising unemployment coinciding with high levels
of debt.
• Bankruptcies look set to go on rising into 2010 –
reaching over 150,000 and could continue well into 2011
(ii) Continuing credit squeeze on SMEs
• Future investment decisions by SMEs are being curtailed
by a lack of credit availability
• Also credit conditions and lending processes are more
opaque than ever – increasingly being decided at Head
Office – to the disadvantage of Welsh SMEs
• Typical complaint : “The company has a proven track
record, we are profitable and don’t have high debt ratios
• But the banks still insist on higher collateral and reduced
credit limits – they are just sitting on the money made
available by the Bank of England’s policy of QE ........
The UK and Welsh economies:
prospects for 2010
• In addition to debt and credit squeeze, we also have
fiscal mismanagement on a grand scale,
• the UK has a huge structural budget deficit - £178 bn.
• This will add to the serious economic and financial
obstacles facing Welsh companies in 2010 –
• and explains why consumer and business confidence
remains fragile.
• A precarious recovery could begin in late 2010
generated by lower interest rates, the lower pound and
low wage settlements
• This will keep UK unemployment below 3 million
Which sectors will emerge from first?
• Despite improvements in the Purchasing Supply Index
neither the manufacturing sector nor the service sector
are likely to boom in 2010 - 2011.
• Similarly the construction sector will be held back in
2010 by high vacancy rates in commercial and
residential property. Fragile growth is in prospect for
2011.
• The most likely growth sectors will be:
(i) the high tech sector – driven by Apple’s Apps and Google’s
innovations in the mobile internet sector – and
(ii) those manufacturing and service sectors able to take early
advantage of the transition to the low carbon economy.
Where should companies invest?
• the ‘low carbon economy’ will be the theme of the next
decade - particularly if we develop the massive tidal
power resources of the Severn Estuary
• so firms should invest in anything that improves the
company’s ability to access these opportunities
• these investments will pay dividends in 2011 – 2015 and
beyond.
• But companies currently heavily dependent on the public
sector should invest in diversification
• because they are going to be the big losers in 2011 –
2015.
What should UK Gov and WAG do?
• Tough choices need to be made in 2010-12, whichever
party is in power.
• The main choice will be how to reduce the huge budget
deficit in ways that do not undermine the recovery.
• But the most important choice will be about the size of
the public sector over the longer term.
• In 1997, UK government spending was 38% of GDP.
• It is now approaching 50%. This is simply unsustainable
• In Wales the share of government spending in GDP is
approaching 60% - which is even more unsustainable
Clear Red Water
• WAG’s ‘clear red water’ policy has been nothing short of
disastrous.
• Compared with England, - it has done nothing to
generate either economic prosperity or solve our social
problems
• Expensive publicity stunts like free car parking and free
prescriptions have diverted attention from the underlying
problem :
• the continuing decline in Welsh relative prosperity levels
– now down to 74% of the UK average.
It’s the Economy Stupid
• Improving economic prosperity is the surest way to
address our social problems.
• However, instead of appreciating this, we have created both in the UK and particularly in Wales - a new industry
of ‘social problem solvers’
• supported by an army of bureaucrats.
• This is not the best way to address our economic and
social challenges
• The new leader of WAG should state categorically that
his overarching goal will be to focus on economic
development
Prosperity holds the key
• WAG’s objective should be to raise our prosperity levels
relative to the UK average.
• Every policy initiative emanating from WAG should focus
on this goal.
• Raising economic prosperity levels in Wales will not
solve all our problems ....
• But providing a better health service and reducing social
deprivation will be much easier to achieve on the back of
a competitive economy.
WAG’s Role
• This inevitably means increasing the size of the private
sector
• it requires WAG to trumpet and encourage the
contribution of private sector companies to all areas of
economic and social policy
• not excluding it from certain ‘cherished areas’.
• Indeed, increased utilisation of private sector services is
the best way to ensure that devolution eventually
delivers an economic dividend
• Only then will the tentative green shoots of optimism
flagged up in this Survey bear fruit for businesses in
Wales