The notion that any industrialised country could isolate itself from a world slowdown was always dubious. The forest product industries know in a globalised economy, existing connections between countries are further strengthened by the removal of trade barriers and increased overseas investment. This means that small and medium-sized nations such as the UK are less in control of their economic destinies than in the past.
Hence the chancellor’s claim to have eliminated the ‘boom and bust’ cycles – which implies that Britain could remain impregnable even as other nations were sinking – increasingly appears naively optimistic.
The probability of a synchronised world recession is looming with ever more certainty. This month’s round of interest rate cuts confirms that western central banks fear a worsening slowdown.
The eurozone appears to be heading for a period of stagnation, with unemployment rising from the already high rate of 8.3% as industrial output declines in Germany, the Netherlands and Spain. According to Reuters-NTC Research, activity in the eurozone private sector has contracted at the sharpest rate in the three-and-a-half year history of the survey.
In the UK the weakness in manufacturing is feeding through into the remainder of the economy as the services sector shrank for the second month running in October. The CBI survey for October shows manufacturers to be at their gloomiest about export prospects for 21 years, and overall business confidence is a three-year low.
Official estimates point to a 1.6% drop in manufacturing during September, more than wiping out August’s unexpected rise of 1.2% and taking the annual rate of decline to 3.7%. However, output growth by sawmills remains strong (up nearly 14% at the annual rate) and kitchen furniture and carpentry/joinery sales are robust, although demand for other domestic furniture is flat, and veneer sheet and plywood production slumped by 15%.
Indicators from The Recruitment & Employment Confederation reveal that job advertising in the national press fell in the year to September at the fastest annual rate in a decade, while recruitment consultancies are experiencing a sharp drop in demand for staff.
The British Retail Consortium reports that high street spending remains strong. But the impact of rising job cuts on consumer spending cannot be delayed much longer, despite the boost given by the latest interest rate cut. The CBI says that the spending boom is already fading, with furniture stores among outlets reporting the most pronounced fall in demand during October.
Despite mortgage costs standing at their lowest for 40 years, the housing market is also looking nervous. Figures from Halifax, Britain’s largest mortgage lender, show that house prices were down 0.5% in October – the first month-on-month decline this year – matching a similar assessment by Nationwide building society.
In the short term the outlook for the domestic property market is weak, as consumers who are concerned about losing their jobs are unlikely to buy houses. But analysts believe that low borrowing costs and pent-up demand will together drive the market forward by the second half of next year.
The latest projections from Construction Industry Forecasting & Research are that total output by the construction industry will rise by 2.4% next year and 2.8% in 2003. This compares with 3.4% growth forecast for 2001, but repair and maintenance work is expected to make the major contribution to the total work load. Output of new private housing is set to fall 2% next year and remain flat in 2003, while new private industrial work is expected to drop 3% next year and stagnate in the following year. New private commercial construction is expected to show no growth in 2002, but fall 2% in 2003.
The London Business School and Oxford Economic Forecasting now expect GDP growth to slow from 2.2% this year, to 1.9% in 2002 – its lowest since 1992. But growth is set to rebound with a 3.2% annual rise in 2003. The forecasters admit that the risk of outright recession at some point over the next 12 months has risen, but say ‘the probability of recession in the UK is no more than 10-15%’.
Related Files
Manufacturing Output
Bulders’ Joinery and Veneer Output
Builders’ Carpentry & Joinery, Wooden Container Prices
Wooden Furniture Ouput
Wood and Wood Product, Cost & Prices
Funiture Costs and Prices
Housing Starts and Completions
New Construction Orders
