Upswing in Sight -- But Then What?

The Confederation of British Industry's proclamation that the worst of the recession may be over will come as welcome news, but the question remains as to how it has changed the the economic landscape in the medium term.

Richard Lambert, CBI director-general, and Ian McCafferty, CBI chief economic adviser, outlined predictions that put the chance of recovery into Q2 of next year, with decline continuing, albeit at a slower rate for the next 12 months

Both added a couple of health warnings:

1. We are in unknown territory in terms of monetary policy. We don't know how it will translate in the short term.
2. The key determinant of the next 12 months will be on the stock side, as manufacturers continue to turn working capital into cash. This may slow up a recovery when productivity increases are once again needed.

But it also advised the government not to cut back on public spending, because a lack of investment in national infrastructure could also slow economic recovery.

What the CBI didn't do is offer any insight into how the economic landscape will have changed by this time next year and what a growth economy in 2010 is likely to look like.

Its announcement raises a number of questions worth considering:

• Are we likely to return to the sort of easy access to credit we have seen in the last 10 years? Probably not. Lenders will hopefully undertake tougher due diligence when considering loan applications. Businesses and consumers will come to expect either denial of credit or to jump through hoops to get it. But will there be more savings as a result?
• And, what will happen to company pensions?
• What will the employment landscape look like? Certainly, there will be a large body of available labour, but we are also likely to see a big change in rewards structures and top-level pay, perhaps making roles overseas more attractive.
• We are also likely to see a change in terms of City whizz-kiddery, with financial analysts who have been laid off not returning to banking and finance. Skills and expertise may go elsewhere -- possibly to academia.
• In manufacturing, if the sector has undergone a period of de-stocking, could we see an increase in the trend towards fast turnaround of stock and tighter credit control, so that producers are less exposed in the future?
• Some service industries may not be able to recover to their pre-credit crunch positions. How much has the recession damaged the reputation of UK financial services? And, as the UK economy relies so heavily on this sector for incoming wealth, if it is diminished, what effect will that have on the country's economy?
• The UK media, too, is likely to come out of the recession a very different beast, with broadcasting and paper press diminished and digital media in the ascendant.