2012: Opportunity or Threat?
I’m told that 2012 will be the Chinese “Year of the Dragon”. This is a highly auspicious symbol.
So that’s sorted then, we can all relax and look forward to an overdue upturn.
Unfortunately, there’s another perspective emanating from the serried ranks of professional economists.
The Office of Budget Responsibility (OBR) has stated as their central forecast for 2012 that GDP will grow by 0.7% after flat-lining for the first half of the year. Interestingly, they compare their estimate to the “average external forecast of 1.2%”. They also acknowledge that the economy grew less strongly than they forecast in March, due to higher than expected inflation.
Just to make us feel even better, they add that they don’t expect output to return to its average long term growth rate of around 2.3% till 2014. To put this in context GDP, as measured by the Office of National Statistics (ONS), grew by 2.1% in 2010 and 3.5% in 2007. So imagine yourself back to those years and calculate your own level of wellbeing.
On the basis that you might be having a scintilla of a shred of a fancy to recruit in the next year, I won’t destroy the moment by recording what the corresponding figures were for 2008 and 2009, but you can guess and they are in the public domain.
Q3 of 2011 showed a GDP increase of 0.6% and Q4 recorded negative growth (otherwise known in English as a reduction) of 0.2%.
I mentioned above the OBR’s re-calibration. So as to give the full picture, the March forecast alluded to was for GDP to rise by 2.5%, quite a difference on an eight month time frame. The inflation index disobligingly escalated from a predicted 1.6% in 2010 to an actual RPI of 4.8% in December 2011.
Elsewhere, the OECD has also been in the futures game. In November, they lit upon a GDP growth figure of 0.5% for the UK in 2012, having suggested it would be 1.8% in May. With a frisson of egalite, the Paris based organisation went on to cut its growth forecasts for all the West’s major economies.
Doesn’t that make you feel better?
However, it’s worth pointing out that the OECD has considerable form in revisiting its crystal ball gazing. Back in 2009, they reported that “the slowdown in OECD economies is reaching the bottom” and in May 2010 GDP was projected to rise by 2.7% in 2010 and 2.8% in 2011. The actual 2010 figure for the European Union was 1.9%. We await with eager anticipation, the final calculation for 2011.
Now, you might be wondering why I’m travelling this particular road, so let me explain.
Keynes contended that the future is unknowable, there is always uncertainty. So why do we pay such store to economic forecasts, particularly when they are revisited so often?
It seems to me that it becomes analogous to changing your bet the closer to the finish line the horse approaches, with a result that most people can see without being told.
It’s about as useful as looking at pine cones or raking through the entrails of a slaughtered sheep.
If you want real insight, better to talk to the people at the coal face and that’s where you come in!
Whilst between you there is considerable diversity in sector and geographic reach, there was a surprising consistency in your views. Common threads suggested investment would continue in 2012 but business cases would need to be “harder edged”. Profits may grow, but on the back of higher margins not uplifts in sales.
There will be reductions in personnel, but the prime driver in this regard is seen as utilisation of better systems and processes, not recessionary pressures - part of on-going market evolution, I would suggest. A sub-set highlighted re-skilling as requirements change for more use of technology, different channels to market and structural changes to individual business models. Reference was also made to further “selective” outsourcing.
For those with business associated with government spending, the austerity programme will obviously impact but, to an extent, this will be offset more generally by investment in enhanced customer facing activity. So, you’re not going to just sit there and take it, new opportunities will be high on the agenda. That being said, the other side of the coin was the observation that belt tightening would necessitate more focus on core activities. Intriguingly, organisations with a diverse product portfolio were much more sanguine than specialists.
Investment will continue despite the downturn and, whilst not universal, there was plenty of reflection on challenging times presenting opportunities for strategic acquisitions. In one case to the extent that investment in 2012 would be higher than ever before.
I’ll have a pint of what that CEO’s on!!
Geographically, there was a compelling consensus. The positive areas were Africa, the Indian Sub Continent, Asia Pacific and Brazil. The Eurozone was viewed as fragile with an upside of modest growth whilst North America was seen as potentially a driver of recovery mitigated with a recognition that it couldn’t do it on its own.
For the UK specifically, the best expectation was for modest growth over the year as a whole. The first half is likely to be tough, particularly in “high street” (should that be out of town?) facing businesses being squeezed between margin seeking retailers and deal savvy consumers.
Human resource wise, the war for talent continues. Turnover rates remain very low, possibly too low in terms of continuous improvement and re-generation. Engagement is becoming a priority, however, as real incomes shrink and the value of incentive plans for management is diminished by extraneous factors.
Answers on a postcard please for creative low cost ways of keeping people motivated.
Nor is attraction easy even in a challenging market. There were a number of references to increased caution amongst the population, particularly when associated with re-location without the all encompassing packages one found in the ‘70s and ‘80s. Building coherent and attractive employer brands is critical. Particular skills shortages were identified in engineering, plant management and technology.
Retention was referred to by one contributor in terms of what might be described as Top Talent. He alluded to a reluctance to commit and transient relationships as “career mercenary” paths are followed. The question was would it be better to settle for a competent but committed individual over the high flyer?
In summary then, we can expect a challenging 2012. No one is expressing despair but the path will be hard. Whilst domestically inflation is forecast to come down dramatically by mid year and we have the Olympics and Jubilee to provide a fillip to the communal psyche there can be no room for complacency. The elephant in the room remains the Eurozone.
Lastly, I wanted to remark on the fact that you really are a self reliant group. No direct appeal was made to what the government can or can’t do. But if I interpret, where it can assist would be on ensuring funds for investment are accessible at reasonable rates, providing leadership in promoting the politics of Eurozone stability, championing price constancy, avoiding the perils of protectionism and assisting in skills acquisition in the enterprise.
I’ll take tax reduction as a given.