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Is the end in sight?

A recent survey conducted by the Institute of Directors (IoD) has suggested that around a third of UK businesses fear a high risk of the country falling back into recession this year.

The UK economy shrank 0.2% in the final quarter of 2011 and similar negative growth is expected in the first quarter of 2012. With a recession defined as two quarters of negative growth, there remains danger that the country could dip back into recession.

However, in their survey of 1,000 business leaders, the IoD suggests that 1 in 2 see a moderate risk of a mild recession. Only 1 in 10 believe Britain will suffer another long and deep recession. The Bank of England predicts UK economic growth of 1% for 2012, avoiding recession but dipping in and out of negative growth.

Euro Fears

One of the biggest concerns for the IoD was the uncertain future of the Eurozone, especially with experts sceptical over the effectiveness of a second bailout for Greece.

Around half of the directors surveyed believed there was a high to very high risk of Eurozone break up this year.

Confidence here plays a vital role in economic outlooks. If the euro is able to stabilise, then many directors may well feel able to re-invigorate investment and recruitment plans that have been put on hold.

Equally, if the euro crashes further, a mood of scepticism is likely to prevail.

Uncertain Optimism

Despite sceptical attitudes towards the Eurozone and a gloomy UK macroeconomic outlook, there does remain considerable optimism in the economic sector.

Companies are in general optimistic about their own prospects, with around half of the IoD expecting higher revenues in 2012 than the previous year.

However, despite some relatively optimistic profit and revenue forecasts, there remains considerable uncertainty over investment and employment.

Graeme Leach, Chief Economist of the IoD, has commented that the difference in 2012 may well be down to the ‘swing vote.’ If the half of directors who have a moderate fear of recession in 2012 become more or less optimistic, this could be the difference between recovery and relapse.

 

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