2010 and all that

So what will 2010 mean for business? Yesterday, in the first day of trading this year, the London stock market moved strongly up with the FTSE reaching 5,500. This buoyant mood was apparently driven by new optimism about the strength of the economic recovery, which seemed to be backed up by a number of positive economic indicators. Two examples of this were manufacturing activity, which accelerated in December, and unemployment, which is now forecast by the Chartered Institute of Personnel and Development to peak at under 3 million. Even CFOs appear to be in a confident mood. Then yesterday came the news that John Lewis and Next had achieved impressive trading performances over the Christmas period.

Anything that creates a “feel good” factor and improves business confidence can only be good for business prospects. However this optimism has to be tempered by the opening salvos (for this year at any rate) in what is likely to be a very long drawn out election campaign, with all the uncertainty that brings. Whatever politicians might promise, and whoever wins, there is going to be an unsustainable gap between government income and expenditure, which means tax increases and spending cuts are inevitable. Even the star retail performers above are preaching caution in their outlook for 2010, something which the disappointing figures from Marks and Spencer seems to bear out.

We remain of the view that businesses will not be able to be rely on economic recovery to achieve better results in 2010, and will need to put in place their own plans and initiatives if they are to move forward. However, good news can only help, so let’s keep looking for it and highlighting it wherever we can.

Breakfast with Bankers

We went off to a breakfast with Clydesdale Bank in Richmond last week to hear the views of Tom Vosa, who is the National Australia Banking (NAB) Group’s Head of Market Economics, Europe. As NAB is one of the few remaining AA rated banks in the world, clearly they have been doing some things right, and it was a good opportunity to hear what one of their senior economists had to say, as well as renew acquaintances with our Clydesdale contacts, and meet other local business people.

Tom has a refreshing approach to all matters economic, and it is testimony to his communication skills that not only did a 72 slide presentation packed with detailed economic statistics and analysis seem to fly by, but we were all able to leave the room fully understanding what his views were for the economy in 2010 and beyond, and how they might affect our businesses and those of our clients.

In essence he believed that the recovery in 2010 would be patchy and would most likely resemble a W in shape than any of the other letters or symbols that have bandied about. While each quarter would show some growth, it would not feel like a recovery. There was still a significant wholesale funding gap, which along with the regulatory tightening that was taking place, would continue to limit the availability of finance. Unemployment and earnings would hold back any real increase in consumer spending, and the need to close the gap in the public sector deficit, through spending cuts and tax increases, would also be a dampener on recovery. Nonetheless, there would be a recovery in 2010, mainly led by the public sector activities currently in force, with the real economy taking up the slack in 2011.

In short the deepest recession since the 1930s, would be followed by the weakest of recoveries. London itself would remain the engine room for national recovery, not least because of the Olympics in 2012, although as with most Olympic cities, there will be a negative reaction in the following year.

Clydesdale very kindly makes available much of its research, which you can look at by clicking here . However, the presentation reinforced our view that businesses will have to create their own recovery stories rather than wait for any pick up in the economy.