| Businesses warned of self-fulfilling prophecy of recession |
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| Monday, 07 January 2008 | |
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Businesses need to be careful that they do not talk the country into a recession, warns business and financial adviser Grant Thornton.
UK optimism levels have plummeted to a balance of just +14 per cent (down from +43 per cent in 2007). This is the UK's lowest result since 2006, when businesses were particularly concerned about the effects of the London bombings and a serious house price correction. Optimism fell below the US, who experienced an optimism level balance of +22 per cent and well below the global average of +42 per cent and the EU average of +35 per cent. The figures form part of Grant Thornton's International Business Report (IBR), which canvassed 7,800 businesses across 34 countries. In the UK it sought the opinions of CEOs, MDs, Chairmen and senior executives of 600 large and medium businesses. Alysoun Stewart, head of Grant Thornton's strategic services group, said that the US was experiencing a greater fallout from the credit crunch than the UK, but that businesses there were more confident about the year ahead than those in the UK. “If the US can be positive about withstanding the effects of the credit crunch, then so can we. In fact, US optimism levels have increased by eight per cent over the past year," she added. Stewart warned that, although no one was suggesting that 2008 was going to be a walk in the park, businesses still needed to be cautious that they didn't end up talking the country into a recession. "We need to cast aside our negative attitudes and focus on solutions rather than the problems," Stewart concluded. The Philippines, India, Vietnam, Singapore and Hong Kong all appear to be unaffected by the credit crunch as they all reported an optimism balance of more than +80 per cent off the back of strong growth locally. Reasons for low optimism levels It is not surprising that the majority (70 per cent) of businesses gave the state of uncertainty in the current economic climate as their reason for the negative outlook ahead. Another quarter (24 per cent) blamed their poor optimism levels on the political situation and a further 21 per cent identified the government's monetary policy and interest rate decisions as the deciding factor for their downbeat stance. A further 15 per cent believed that a lack of skilled workers was still hindering their confidence about the year ahead. Stewart said that businesses were crying out for a relaxation in monetary policy to counter the economic slowdown and were asking for a stable environment from which they can operate. “With consumer spending falling and the housing market showing signs of slowing, a lack of confidence about the prospects for 2008 is understandable," Stewart added. Economic indicators Expectations for turnover and selling prices were slightly more optimistic despite the UK's confidence levels plummeting, reporting a balance of +68 per cent and +42 per cent respectively (up from +64 per cent and +35 per cent in 2007). Both results were higher than the EU (+65 per cent) and global (+64 per cent) averages. Anticipation about increasing employment levels was positive at +36 per cent (up from +33 per cent in 2007) and investment in plant and machinery remained static at +38 per cent. Expectations for profitability (+54 per cent down from +57 per cent in 2007) and exports fell (+15 per cent down from +16 per cent in 2007). "By anticipating an increase in turnover and selling prices, businesses are sending a clear message that for all the doom and gloom heaped on the UK economy, pockets of optimism still remain," according to Stewart. UK regional results Businesses in the Midlands expressed the highest levels of confidence for the year ahead with an optimism balance of +19 per cent, followed by London and the South (+14 per cent) and the East of England (+6 per cent). Businesses in the South West, West and Wales reported a balance of zero per cent. Those in the North, North East and North West fared the worst, however, with an optimism balance of -1 per cent. "Given London's reliance on the financial services industry and the uncertainty over jobs within the City, it is surprising that London fared so well in the optimism stakes," Stewart pointed out. “Businesses in the North, North East and North West, however, are clearly battening down the hatches for a tough year of trading," she concluded. Related articles
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