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South Wales Chamber Quarterly Economic Survey 2009 Q4: Implications for the Welsh Economy

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. No real Trends. No clear pattern is emerging

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South Wales Chamber Quarterly Economic Survey 2009 Q4: Implications for the Welsh Economy

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  1. 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

  2. S W Chamber Survey: Summary

  3. 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

  4. 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

  5. We don’t have reliable quarterly data for Wales Source: FT

  6. Wales GVA per head 74% W A L E S

  7. Relative GVA : UK = 100 1999 -2007

  8. Welsh Unemployment After 10 years of decline Unemployment has doubled In two years to over 80K

  9. Unemployment Rates Aug 2008 to Aug 2009 • Year Wales England Scotland N. Ireland • 2009 9.1% 7.9% 7.1% 7.1% • 2008 5.9% 5.9% 4.7% 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

  10. 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

  11. (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 ........

  12. 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

  13. 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.

  14. 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.

  15. 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

  16. 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.

  17. 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

  18. 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.

  19. 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

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