Scottish Agenda: Green shoots of recovery or yellow weeds?

By Ian Fraser

Published: The Sunday Times

Date: May 17th, 2009

It is less that a month since it was confirmed that Scotland plunged into recession in the second half of 2008. However, our fund managers, market participants and economists seem remarkably bullish. Some are reporting green shoots with others convinced a rebound is underway. The overall impression is that the “patient” of our economy has been stabilised or is already on the mend.

The concerted nature of these announcements almost made me wonder whether someone must be orchestrating the tsunami of positive news (the chancellor Alistair Darling or business secretary Lord Mandelson, perhaps?). Given that the government now controls so many of the UK’s economic levers, through its banks stakes and so much besides, it would perhaps be appropriate that it should have a monopoly of economic forecasting too.

Seriously though, whereas last October the world was on the brink of systemic meltdown and HBOS and Royal Bank of Scotland came close to collapse, these outcomes would be inconceivable today.

Thanks to bank bailouts, the Bank of England’s £125 billion “quantitative easing” and other stimulus measures, fears of Armageddon are a distant memory and businesses and consumers have rediscovered a degree of confidence.

Gauges of economic stress, such as spreads on three-month Libor, have narrowed considerably. On Monday the OECD said the UK economy had bottomed out in March and that our recession could be over as early as August. There were also chinks of light from the housing market, with one housebuilder resuming work on mothballed sites.

Colin McLean, managing director of Edinburgh-based SVM Asset Management, and Richard Batty, chief investment strategist at Standard Life Investments, were among those looking on the bright side. McLean said: “The key economic indicators now point to a more powerful and sustainable rally than those of 2008.” Batty said the current level of dividend yields over cash demonstrates that equities are undervalued.

The picture on unemployment was admittedly more mixed. Last week there were job loss announcements from, among others, British Polythene Industries and British Telecom. It also emerged that unemployment in Scotland had risen by 34,000 in the past 12 months, to reach 5.9%. This may seem depressing but it needs to be put in perspective.

The joblessness level remains low compared with many other countries. In Spain unemployment has reached 17.4%. It has climbed to 16.1% in Latvia, 11.4% in Ireland and 7.1% in the UK as a whole.

So are we able to put the anxiety and pain of the recession behind us and return to business as usual? Not quite. Much is going to depend on how consumers behave. Given the global slump in asset prices, it is fair to assume that levels of indebtedness are going to take some time to clear.

Some are warning against jumping to conclusions. Last week the US economist Nouriel Roubini warned that those much-heralded green shoots of recovery might well turn out to be yellow weeds.

Mervyn King, the governor of the Bank of England, also urged caution. Issuing the bank’s quarterly inflation report on Wednesday, he rubbished Darling’s bullish predictions of a “trampoline” recovery saying that any economic revival is more likely to be sluggish and stuttering. So who are we to believe?

Well, as the old saw would have it, forecasting is always difficult, especially when it concerns the future.

Venture set to vanish

Scotland’s tenth-largest listed company looks set to be swallowed up by a larger fish. Roger Carr, chairman of Centrica, last week admitted that his multi-utility remains attracted by Aberdeen-based exploration firm Venture Production.

The Scottish Gas parent recently amassed a £1.1 billion war-chest after paying less than expected for a stake in nuclear generator British Energy.

It has already accumulated a 23.6% stake in Venture, led by chief executive Mike Wagstaff. Carr last week told investors: “We are pleased with the stock. We are looking at the company. We find it an interesting business. We are keeping our options open for the future.”

It would be sad to see Venture go. Floated for £180m in 2002, it is today worth £1.2 billion and has become one of the stalwarts of the North Sea.

Pedal power

As the Original Bicycle Festival shifts into a higher gear in Dumfries & Galloway this weekend, Scotland’s cycle shops are reporting an unprecedented surge in business, with sales rising by 19.8% in April compared with the same month in 2008, following a 22.6% surge in March.

This may be a result of recessionary downshifting, coupled with people’s desire to do their bit for the environment. Mark Brown, director of the Association of Cycle Traders, believes good spring weather and government schemes such as the cycle-to-work initiative helped too.

Sightings of green shoots might turn out to be a wishful mirage elsewhere, but in the cycle trade they are for real.

Short URL: https://www.ianfraser.org/?p=836

Posted by Ian Fraser on May 17 2009. Filed under Article Library, Latest Articles. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry