UK’s Forum of Private Business sees export-led recovery unlikely in 2013 with the Eurozone in recession and growth below 1%.
While 2012 has been tough, conditions in 2013 should get better, but only marginally so.
This is the view of the Forum’s economics expert, Professor Philip Whyman, who has warned of another tough year ahead for business with growth coming in at under 1% for the year – significantly less than growth forecasts from the CBI (1.2%) and the Office for Budgetary Responsibility (ONS) (1.4%).
The Forum represents thousands of small businesses across the UK – including retail, service providers and manufacturing companies. The Forum is recognised by the Government as one of the six main business support and lobby groups.
Professor Whyman thinks that much will depend on the depth of the recession in the Eurozone – the UK’s biggest trading partner – as to how things eventually pan out.
UK’s GDP growth flatlined in 2012, with the economy experiencing a double dip recession.
Professor Whyman says the Eurozone crisis is also far from resolved, thereby undermining the anticipation of an export-led recovery being based on trade with Europe.
Consequently, forecasts for growth rates in 2013 are feeble, ranging from around 1% by the Bank of England, 1.2% by the OBR and 1.4% by the CBI. The Bank of England predicts that it will not be until 2015 at the earliest that the UK national income will have recovered to the levels last seen before the 2008 financial crisis – eight wasted years!
Professor Whyman also points out that the threat of a triple dip recession has not gone away if the economy has again slumped over the final period of 2012 and first half of 2013, with a weak recovery thereafter.
Given the lack of budgetary stimulus, the unwillingness of the Bank of England to engage in further quantitative easing for the time being, and the fragile state of the UK economy, Professor Whyman expects the UK economy to grow by less than 1% next year,” he said.
There was at least some good news for the UK economy in terms of jobs throughout 2012, which had surprised everyone, he admitted.
“In terms of unemployment, this is the apparent success story of the flexible labour market, in that all commentators, myself included, have been wrong footed by unemployment falling despite the weak state of the economy. Expectations are for little net change next year, remaining at or around 2.5 million or 8% of the labour force.”
He warns, however, that these headline figures should be treated with a little caution as they mask the fact that much of this seeming improvement has occurred due to a large increase in the self-employed and those working part time but wanting a full-time job. In other words, the numbers of people in employment is disguising under-employment; an issue less important when the alternative might be unemployment and the rusting of skills, but it becomes more significant when the economy starts to grow if firms try to hold on to this hoarded labour, as this will lower the productivity of the economy as a whole.
The weakness of the labour market is reflected in falling real incomes and the resultant lack of consumption expenditure.
As to what the UK Government could do to stimulate growth, Professor Whyman believes there are actions it could take. Primarily he says lending to small business must be improved by any means possible. He also suggests a programme to re-skill the economy to help improve employment.
The Government could act now on providing more credit to those SMEs with good growth potential, preferably by side-stepping the banks if they remain incapable of performing this function, using a combination of insurance, pension funds and national or regional state banks to do what needs to be done, says Professor Whyman.
They could invest in a significant re-skilling of the UK labour force, including revisiting recent higher education reforms which are likely to undermine this effort. They could engage in an effective industrial policy, which could achieve the re-balancing of the economy that both coalition parties advocate, by targeting investment towards those sectors where independent business advice might indicate a potential competitive advantage for the UK.
He also says the Government should move quickly to stimulate the construction sector by engaging in infrastructure and house building projects which will be needed by the economy of the twenty first century.
This should be a good time to agree contracts for these investments, as large parts of these industries lie idle but, should competition not provide low prices and value for public investment, then there is nothing to stop the public sector from either building things itself, or alternatively setting up alternative, perhaps co-operative, organisations to be tasked with providing houses to meet social need, as occurs in many other European economies.
“The only real limitation to these initiatives is the imagination of those in charge of the national economy.”, he concluded.