Industry Boom Forecast After Recession
As the UK economy continues to contract and shrink, with some forecasts predicting that the economy will shrink by 3.5% in the coming year, and with the fabled green shoots of recovery continuing to prove illusory, it might be premature to start to consider what type of recovery the economy will see. How will industry recover and be the engine for the growth? Will industry boom or will it recover slowly but steadily?
The simple answer at this point of the economic cycle, depressing as it might be to hear, is that no one has any idea. The only glimmer of hope is that few predicted the timing, depth and suddenness of this economic crisis so perhaps no one out there can similarly see a quick recovery.
In its latest economic forecast, the Bank of England, who really ought to know best, believes that recovery is likely to be 'slow and protracted'. They believe that growth will decline by 3.9% in 2009 and grow by about 1% in 2010. The pace of economic decline may have slowed and to some degree steadied but there is no evidence that the economy is yet out of the woods. And, as if to confirm how difficult it is to predict the future and to determine what kind of a recovery may be experienced, even the Bank acknowledges that the timing and strength of the recovery is 'highly uncertain'.
It may be helpful to look at the views of investors and businessmen to help determine whether industry can be expected to boom. The level of confidence shown by these important groups is critical to understand, as this will quickly translate into orders and purchases.
The CBI Industrial Trends Survey by asking business leaders how they expect conditions to change over the next 6 months, is useful as a predictor of changes to the economy as their expectations will be mirrored by their actions in placing orders or in hiring and firing employees.
Now For The Bad News
The CBI Industrial Trends Survey continues to trend sharply lower. Indeed the OECDs composite index of the UK's leading indicators has dropped by 6.7 points over the past 12 months to 95.7. 100 is the long term average and as the OECD says, a drop of this scale suggests 'a strong slowdown' which could be construed as a statement of the obvious as unemployment figures continue to climb inexorably.
In other words there is absolutely no sign that industry is likely to boom post recession. And nor do the lessons of history help or even give cause to hope.
Two leading US economists, Carmen Reinhart and Kenneth Rogoff, have studied the aftermath of 18 major financial crises around the world. Their work suggests that 'big financial crises are protracted affairs' with severe and long lasting effects on house and share prices, on the real economy and on government finances. Their work does not suggest a boom either for industry, though as we all know now, the past is not necessarily a good guide to the future.
So What Happens Next?
Again the simple answer is that no one is sure. The export sector, where the UK has some industries with strong reputations, such as in aerospace and pharmaceuticals, is expected to be key to recovery. However, markets all around the world are similarly experiencing slow down and until there is a global recovery the ability of the export market to pull the economy out of its current torpor will be severely limited.
In the 1990s the global economy was powered along by the spread of internet technologies which underpinned and facilitated the globalisation of the economy. This was not seen by those commentators at the time as the world dealt with the 1990-91 recessionary period, the last sustained economic crisis the world has faced. So maybe, just maybe, a similar breakthrough technology or innovative idea is emerging to act as the catalyst for economic change on this occasion and to help industry move from bust to boom. And quickly.
And perhaps such breakthrough thinking might emerge in the growing interest and demand for renewable, green and environmentally friendly industries. Certainly governments around the world hope so, as seen by the UK government's commitment to help the car industry get into better shape for a green world. And as innovators in renewable energy, waste management and other environmental services emerge to meet rising consumer and business demand for their services and products, increasingly incentivised by government support, this might be the economy's and industry's best hope.
And so back to the question-will industry boom after the recession? And the answer? No idea.