BITA commissioned economist sees uncertainty ahead
May 13th 2010 Independent analysts Oxford Economics have predicted modest growth for the UK economy and the logistics industry as the most likely scenario in the coming years.
The economists were appointed by the British Industrial Truck Association (BITA) to carry out a survey of the economy and predict truck shipment and order figures to 2014.
Oxford Economics predicted a modest recovery in 2010 but the report outlined a number of possible risks to a sustained period of growth for both truck sales and the economy as a whole.
Rhys Herbert, senior economist at Oxford Economics said he was cautiously optimistic as the country moves from recession.
“In the short term, recovery from recession may be surprisingly strong but when we get past the first burst, growth could slow,” said Herbert.
“There is still considerable uncertainty about outlook, but risks are more balanced than 12 months ago.”
The economist outlined a number of possible scenarios including his own forecast of slowly rising business and consumer confidence with modest recovery in 2010, gaining traction in 2011.
The best case scenario was a V-shaped recovery, characterised by strong emerging markets, rising monetary stimulus and swiftly rebounding confidence combining to deliver strong growth.
A W-shaped cycle would be characterised by growth supported by inventory
rebuild and greater world trade but offset by weak final demand as banks
and households kept deleveraging. This scenario would see growth sluggish in 2012 after a 2011 bounceback, Herbert said.
The worst case scenario would be characterised by a renewed slump in asset prices as pressure builds to cut deficits, slowing growth. Rising unemployment and business
failures would contribute to a flatlining economy in 2010 and beyond. The likelihood of this worst case scenario was rated by Herbert to be one in four to one in five.
Herbert, in his presentation at the BITA AGM, outlined many positive economic factors, such as a big rebound in world trade, which when including the export of services as well as products, he claimed would provide a huge boost to the UK.
He was also heartened by a strong rebound in equity markets and that fiscal policy was still expansionary worldwide, although the UK is one exception to this trend.
He also noted that the huge de-stocking by businesses undertaken since late 2008 has stabilised over the last 3-6 months but conceded that stock was not yet building in any major way.
Investment surveys have also bounced up (CBI, BCC) but are still modest by past standards.
Manufacturing capacity is up on the historic trough of 2009 but still low at 75%.
Unemployment is also relatively low in the UK compared to the Eurozone. However, Herbert said: “We have factored in the risk of some public sector job losses into the forecast but there is a considerable downside risk if cuts are deeper.”
As well as outlining positive economic factors, Herbert delineated risk factors such as Government debt and the spending cuts likely to occur as a result.
Herbert was more pessimistic than the Treasury on net borrowing and said debt interest will soon climb to 8% of total Government spending rather than the 4% outlined by the Treasury.
He added: “The emphasis will be more on cuts rather than tax rises. The ratio is likely to be 4:1 in favour of cuts over taxes. After the 1990s recession, the ratio was 1:1.
“There will be a period of sustained financial restraint but I am sceptical about where Government will be able to deliver cuts. Wages and procurement both represent 25% of the budget and it is much easier to say than to do something about these areas. A likely easy target is the 7% of the budget earmarked for investment.”
Herbert was also concerned about low consumer confidence, which is exacerbated by a high (though falling) personal debt to income ratio. This is at 140% from a peak of around 160%.
The economist also noted that banks are still facing losses on loans and are reluctant to lend.
For more specific figures on predicted truck sales see story below. More articles from BITA: | 
