YHCC: Rebound in confidence is first step to recovery
Monday, 20 Jul 2009
YHCC President Richard Wightman comments on the April to June 2009 Quarterly Economic Survey results which showed an improvement in business confidence:
It's still too early to say the Yorkshire economy is in recovery, but there are some tentative signs that the deepest point of the recession could have been the first quarter of this year.
Just as the dramatic falls in business confidence in late 2007 precipitated a period of huge falls in sales, orders and investment, the equally dramatic rise in business confidence could signal the start of a recovery.
Indeed the improvement in service sector balances is particularly significant. Profitability expectations in Yorkshire’s service sector is higher in this quarter than any other part of the UK. The service sector employment balance was also second best of any UK region, adding to the sense that Yorkshire & Humber is fighting hard against the global downturn. Manufacturing confidence also rose above the national average although other indicators showed the difficulties that continue to impact on the sector.
The key point is that confidence would be first indicator we would expect to see improve before any sustained recovery were to begin. The significant improvement from the low base of the last quarter does suggest sales, orders and investment could follow over the coming months.
There are reasons to remain cautious. The recovery is likely to be slow and bumpy, and in the meantime the recession will claim more victims as businesses cut costs, jobs, and in the worst cases go bust. It is very difficult to talk about recovery when the painful legacy of recession will continue for some time. The emerging fears that it may be difficult to avoid fuelling inflation as we move back to growth is also a concern. As global demand starts to rise, there is every possibility that oil and raw material prices could increase rapidly.
We are in uncharted territory and the medium term effects of near zero interest rates and quantitative easing are unknown. This survey does show however that future inflation is an increasing concern for many businesses. The past year has also seen substantial destocking and the recent rise in optimism is in part due to rise in demand as some business re-stock. There are no guarantees this improvement will be sustained.
For all of these reasons, we need to keep more positive results of this survey in perspective. But we also need to be optimistic. The recovery can only begin in earnest once consumer and business confidence starts to return and this survey provides evidence that this is now what is starting to happen.
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