Economist sees uncertainty ahead
May 1st 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 logistics industry 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 may be surprisingly strong but when we get past the first burst, it could slow,” he said.
“There is still considerable uncertainty, 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 grows to cut deficits, slowing growth. Rising unemployment and business failures would contribute to a flatlining economy in 2010 and beyond. The likelihood of this scenario was rated by Herbert to be one in four to one in five.
World trade boost
Positive economic factors were outlined, such as a big rebound in world trade, which when including the export of services as well as products, should provide a huge boost to the UK.
Herbert 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.
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 outgoing Government.
He added: “The emphasis will be 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.” More articles from Handling & Storage Solutions: | 
