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Leading Indicators

The past three decades have seen at least one severe recession that has had a lasting impact on the UK's socio-economic landscape. While each recession has been unique in terms of triggers and macroeconomic context, there are inevitably some common themes that can be studied to gauge the likely severity and impact of the current recession.
 
Comparing the causes and consequences of past recessions can help formulate an informed short-term view of an economy. We have recently appointed Experian to undertake such a comparison to construct a short-term outlook for the North West. Some of the key messages from this report are as follows:

  • The macroeconomic environment of the two previous recessions - of high inflation and high interest rates - was very different from the current recession which has been preceded by a relatively benign macroeconomic environment.
  • The current recession has its roots in the bursting of the US sub-prime property bubble which has worked its way through a globally-connected banking network to the UK financial services sector.
  • Despite ending within 6 quarters, the total impact of the 1980s recession was significantly greater than that of the 1990s with output contracting by about 7% in the North West. However, recovery, supported by the emerging services sector was relatively quick and robust.
  • In contrast, while the total output contraction in the recession of the 1990s (of 2.5%) was less than half that seen in the 1980s, the recovery was slower and protracted with growth not returning for 9 quarters.
  • Hard data already shows that the current recession will be deep and closer to the 1980s recession, recovery is likely to be patchy and more in line with a slower return to growth in the 1990s.
  • During the recession of the 1980s the manufacturing sector in the North West was severely impacted, particularly heavy manufacturing sub-sectors such as metals, minerals and chemicals and other (mainly low value) manufacturing, where output declines of almost 20% were witnessed over the course of the downturn.
  • Experian forecasts suggest that the current downturn will be wide ranging, impacting all sectors of the economy. While financial and business services have been at the heart of this recession, it is manufacturing and construction that are expected to fare the worst.
  • During this recession some smaller sub-sectors of the economy - particularly some high-value manufacturing, healthcare, environmental and tourism-related activities have proved resilient to the downturn. There is much debate about whether it is within these sectors that the UK's and region's future lies.

To find out more on how a recovery is likely to unfold by looking at the sectors where 'green shoots' first emerged in previous sessions please read the Experian report.