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13 April, 2021

Get ready for a bumpy future

25 March, 2013

What does to future hold for the British economy and how should you prepare for it? In this exclusive column, the economist Alan Beaulieu, who is CEO of ITR Economics*, and his colleague, Will Skebey, make some predictions and offer advice for UK industrial firms.

There are signals emerging from leading economic indicators that suggest that the business climate will improve later this year. Understanding what lies ahead for the UK and EU economies will help position your company for increased sales. But that positioning can often be hard because it might involve enacting change and saying “goodbye.”

Whether it is letting an employee go, leaving a supplier, or eliminating a part of your product offerings, these decisions are necessary to stay competitive and profitable. Making tough choices at the right time is especially important as technological advances connect businesses and customers throughout the world, turning once-regional markets into global opportunities. For UK manufacturers, keeping costs lean and margins flush (without sacrificing quality) are vital to expand business while low-cost products from Asia and Eastern Europe flow into the EU market.

The UK recession is persisting, with annual industrial production down by 2.4% in 2012, compared to 2011. But internal trends show that the recession is gradually losing momentum, and December production was only 1.7% less than in December 2011. The UK Leading Indicator, an index of financial, manufacturing, construction, and employment data, is rising above year-ago levels, signifying market conditions are generally improving. A rising Leading Indicator confirms our forecast of a more stable UK economy in the second half of this year.

Both businesses and consumers will increase spending as the economy emerges from recession. The economy should provide a positive climate for investment in capital equipment and the purchase of retail goods into 2014. However, market conditions will be favourable for only a brief period because, by the middle of 2014, global macroeconomic activity will taper off, resulting in the UK falling into recession for the third time in six years. Moving swiftly in the domestic market will help businesses to expand sales and boost profits while competitors languish in uncertainty. It is also a good time to develop a plan for loading up the pipeline in the second half of the year and in early 2014 in anticipation of the next downturn.

The European economy is falling deeper into recession as politicians debate banking regulations, budget policy, and structural changes to the EU. In 2012, Europe Industrial Production (our benchmark for the European economy) decreased by 2% from the previous year. Recessionary conditions will linger during the first half of this year, but we anticipate a stabilising economy during the latter stages of 2013 as the on-going budget and monetary reforms build confidence in businesses and consumers. Over the course of the next two years, we expect the European economy to improve at a mild 0.8% annually. Enhancing product quality and developing strong relationships with clients will be essential to grow your brand across Europe, especially as more mature markets become more competitive.

Financial markets are showing signs that 2013 will not be as bad as 2012 in Europe and the UK. Confidence is building in the European financial sector, with the FTSE-100 and Dax (German stock exchange) annual indexes rising above year-ago levels in early 2013 (see chart above). The rising stock exchanges signal that both businesses and investors are optimistic over the future course of the economy. In the bond market, falling government bond yields for Greece, Spain, Portugal, and Ireland indicate investors approve of the countries’ austerity and stability efforts. Declining bond yields show progress toward each country funding their own deficit spending. This is an important step for the EU and the European Central Bank (ECB) after issuing billions of euros to financially strapped countries in recent years.

The current economic climate is a good time for business leaders to gain a long-term perspective on markets and competitors. Developing new efficiencies and competitive advantages will help position companies for long-term growth as others in the industry struggle to adapt to higher borrowing costs and mild inflationary pressures. Embracing new technology and expanding sales channels will keep businesses at the forefront of the drives and controls market.

* ITR Economics International is a global authority on business cycle forecasting, with bases in the US and Europe. ITR claims to have a 94.7% accuracy rate for its forecasts. ITR’s CEO and president, Alan Beaulieu, is also chief forecaster for the European Power Transmission Distributors Association. Will Skebey is an economist with ITR.




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