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Latest Business Barometer Results (April 09)
Friday April 17th, 2009
By Jackie Harvey (Professor in Financial Management) and Richard Slack (Professor in Accounting)
The analysis of the latest North East Business Barometer is being written against the background of the measures agreed at the G20 economic summit and their favourable reception by financial markets evidenced by the FTSE100 climbing back through the psychological 4,000 benchmark, a level not seen since the middle of February; although it should be noted that this is still a long way from the peak of 6,700 reached in early July 2007.
Despite the desire to grasp any signs of recovery (last month's minor jump in house prices for example) as being indicative that we have reached the nadir of the current crisis, the reality for UK PLC still makes pretty grim reading. National Statistics data for the last three months of 2008 show that GDP fell by 1.6% (its biggest quarterly fall since 1980) to stand 2.0% lower than for the same period 2007. Add to this the dramatic slowdown in manufacturing output (fall in output from production industries of 4.5% during the fourth quarter four following on from a fall of 1.8% in the third quarter); the further fall of 0.8% in service industries output over the same period (-0.5% quarter three); the rise in unemployment to 6.5% for the three months to January 2009 (1.3% higher over the year); and finally, the rise in the savings ratio, which having been negative for part of last year rose to 5% during the final quarter of 2008, the highest level since the end of 2005. It is evident that we are not yet out of the woods.
In our last business barometer published in November 2008, some 42% of respondents expected turnover to fall; 47% anticipated a reduction in the workforce and the general business climate was perceived as uncertain by 53% and pessimistic by a further 33%. The fragility of market confidence was perhaps best illustrated by the fact that while only 2% of firms were operating at well below full capacity earlier in 2008, 31% of firms were in this position in November. So how are things today? The latest survey indicates that just over half of all respondents (52.5%) are expecting turnover to fall and just under three-quarters (72.5%) described the general business climate as pessimistic. On a slightly more positive note only 17.5% anticipate any further reductions in workforce with half expecting the workforce to remain at its current size and only 12.5% of respondents indicated that they were operating at well below full capacity. This suggests that structural adjustments have already taken place, although it is concerning that for many, the expectation is of further contraction in turnover.
Unsurprisingly, the key business risks are still seen as being a tightening of credit (45% compared to 42% in November) and lower consumer spending (37.5% compared to 39% in November). It is evident that there is no expectation that this situation is likely to improve in the near future. Consistent with the national picture, production is unlikely to pick up given the continued absence of consumer demand, a situation that is forecast to continue at least until the end of this year and probably longer. Despite all of the recent attempts to ease the flow of credit within the financial system, credit constraints and a lack of finance were identified by 62.5% of respondents (compared to only 28% November) as an inhibiting factor in the event that expansion was contemplated. A new area included in this survey focussed on the potential disruption arising from a breakdown in supply chain due to business failures elsewhere. Interestingly this was identified as a risk by a tenth of respondents.
While failing to have the desired impact on credit availability, monetary easing has contributed to depreciation in the value of the currency, a factor that was commented upon in our last survey. It is unlikely that the pound will move significantly away from its current trading range which will be beneficial for the 37.5% of businesses with overseas markets.
The impression gained is that possibly the major adjustments in response to the recession may have taken place, however, there is no expectation of any great improvement until at least the end of 2009. It will be interesting to see if signs of recovery come through in our next survey at the end of the year.
To look at this story on The Journal's nebusiness website please click the following link:
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