DAVID SMITH
Chief economist at the City stockbrokers Williams de Broe.
The question is whether we are heading for a serious recession orjust the implosion of the technology stock bubble. I believe by theend of the year we'll be looking at a US recovery because PresidentBush's tax- cut proposals should provide some stimulus.
The concern in the UK is the increase in public spending,announced in the Budget, which could be a millstone round the neck ofBritish industry if we head into recession. If the situation worsenedwe could be looking at the sort of problems we had in the mid-1970sand early 1990s.
The effect of excessive tax and regulation is equivalent to aperson being five stone overweight. You have no problems if you neverhave to run for a bus, but you could easily have a heart attack ifyou have to do so because of a world recession. Britain was never aslean and fit as it liked to think - it was 20st in 1979, dropped to15st in 1995 but we are now back to 17st.
ROGER BOOTLE
Managing director of the independent consultancy CapitalEconomics, and specialist adviser to the House of Commons TreasuryCommittee.
I think the US is going into recession. The world's stock marketswill plunge. We'll see low interest rate levels that we haven't seenfor a generation. Inflation is set to fall much further in the UK.
More people will not have jobs. For those in work earnings growthwill be hit. The City will be severely affected because there aremany American firms there, and because of the slowdown in equitymarkets. There will be a severe shake-out of the number of peopleemployed in the financial sector.
The pound would fall against European currencies so goods andservices produced there will cost more. For people with mortgages theeffects will probably be favourable. Mortgage rates may fall evenmore than base rates. But as rates are slashed, those who rely onincome from savings could be seriously affected.
JOHN BUTLER
UK economist at the global investment bank HSBC.
Growth in the UK economy will almost certainly slow this year.Industrial sectors are likely to be in a technical recession bysummer, led by IT and telecoms, which had been expanding fast. Allsectors exposed to the US market, such as financial services andtourism, are likely to be hit hard.
The rest of the economy should hold up. The average US householdholds a large proportion of its wealth in stocks and shares, whichhave lost a lot of value recently. The UK household is still heavilydependent on the housing market and here things look fine.
House prices continue to rise, and there is little reason toexpect them to slow since housing remains affordable. In the late1980s, 70 per cent of people's income went into paying mortgages. Butthis has shrunk to 30 per cent.
If a person works in manufacturing, say telecoms and IT, and hasmost of their assets in the stock market, they will be facing hardtimes. But if a person is working in a UK -demand oriented sector,say the service sector, and has most of their wealth in their house,they shouldn't be too worried.
SIR MARTIN SORRELL
Chief executive of WPP, the world's largest advertising andmarketing services group.
The old economy is more resilient than the new. Packaged goodscompanies will be more resilient than IT and telecoms. It is therevenge of the old economy. However soon the US recovers, there willbe a ripple effect of the downturn into the UK, continental Europe,Asia Pacific and Latin America. When America sneezes we all catch acold.
Much wealth in America is based on stock market valuations - andpeople have borrowed money to spend. When markets are falling itdamages consumer confidence, which affects spending and thereforecorporate profitability. The growth in 2000 could not have continued.US growth will be slower than elsewhere.
CHARLIE MUIRHEAD
Founder of the software company Orchestream. Founder and chairmanof igabriel.net, a business angel network, and now CEO of a newcompany, InterProvider.net.
The bear market doesn't mean new IT and internet companies can'tbe started. Entrepreneurs with a strong track record who have ideasoffering very clear benefits but low capital investment will stillfind backers.
The US had more air in their tech stock bubble, so business willbe affected as spending slows. Because the tech bubble was smaller inthe UK, fewer people will be affected by the fall in markets, soconsumer spending shouldn't be affected too much.
SHAMIK DHAR
UK economist at Morley Fund Management.
The knock-on effects of the US slow-down will be significant. TheUK is heavily invested in the US, so corporate profits, investmentand exports will be hit. Until now consumer spending has been strong,but recent big falls in stock markets could cause it to slow. Londonand the South-east will be most affected.
I don't think the UK will go into recession. There's a lot of badnews around. But the gloom will dispel, and our economic fundamentalsare strong.
KATE BARKER
Chief economist of the Confederation of British Industry.
The UK economy will be hit by the deterioration of the US andJapanese economies. But UK policy-makers have scope to pull thecountry out of the worst problems. The Budget shows that governmentspending increases and lower taxes will support the economy. Withinflation under control there is scope for interest rate cuts.
There will be more job losses in manufacturing, but domesticdemand will be quite buoyant so I'm not expecting unemployment torise. In the US conditions are really difficult. But the UK's economyis fundamentally strong and at the moment we are not very vulnerableto outside shocks.
PROFESSOR JULIAN LE GRAND
Social policy expert at the London School of Economics.
Much of the impact will be psychological. Most of our trade iswith Europe, and the proportion of trade from the EU to the US andJapan is relatively small, so we could be immune to the effects of aglobal downturn. But it is possible to talk oneself into recession -it's about confidence. If there is a feeling the boom is over, itcould be a self-fulfilling prophecy. I think that'll happen.
The US and Japan are in trouble. How deep the bust will be is thequestion. Alan Greenspan might be able to mitigate the effects butwe're in hard economic times. Can the welfare state sustain adownturn? It will be a real test of government methods.
No comments:
Post a Comment