Economic recovery is a slow and painful process

With the news that other major economies are out of technical recession, can we dare to dream that good times are just around the corner for the UK?

One finance director who ought to know is Ray Doughty from FD Solutions, a team of FDs who support businesses struggling to keep on top of their finances.

“General upbeat company news has led to greater confidence in the stock market ­ major companies that provide value seem to be doing well currently,” he says.
So break open the champagne, then?

Keep it on ice for a while longer. “The UK’s economic recovery will be fragile,” says Simon Kirby, an economist at the National Institute of Economic and Social Research (NIESR). Joe Nellis, professor of international management economics at Cranfield School of Management, agrees that the UK economy “will have a bumpy recovery next year.” Patrice Muller, a partner at London Economics, adds that he expects modest growth to recover in the UK and North America, while it will be stronger in continental Europe ­ putting the pressure on any government for the latter half of 2010.

Muller believes we will see anything from 2% or 3% GDP growth in the UK and North America and from 3% to 3.5% in Europe between the last quarter of 2009 and the same time in 2010. “Asia will power ahead and China will continue to lead the pack,” he says.

Nellis is less optimistic, predicting GDP growth of 1% or 2% in the UK and around 1.5% in Europe. “But the US looks set for a solid rebound ­ perhaps growth of as much as 3.5% in 2010,” thinks Nellis. “Asia is already showing signs of growth with China and India back to pre-crisis rates of between 8% and 9%.”

With consumer spending still depressed, how is the UK going to stimulate some growth in 2010? “Economic recovery is dependent on the contribution of net exports and in that sense, is dependent on the recovery of the major eurozone economies and the US,” says NIESR’s Kirkby.

“A rapid recovery in these economies would drive recovery in the UK.”

He adds, though, that any quick return to inventory accumulation would come at the expense of economic growth in 2011 as the greater issue for sustainable growth is the indebtedness of household balance sheets, which a focus on driving inventory would put at risk of being overlooked. “We do not expect the recovery to be driven by UK consumers, but there is a risk that consumption growth could return,” says Kirkby.

Double-dip
What about the threat of the dreaded double-dip recession? London Economics’ Muller doesn’t buy it as a credible option. “There are no signs of an impending double-dip recession ­ no inventory overhang,” he says. “While it can’t be completely ruled out, the probability is relatively low. Much more likely is a gradual, but sluggish recovery, with growth picking up only in the second half of 2010 in the US and UK.”