08th September 2010
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predictions for 2008
Credit crunch to continue?, Hillary for President?, housing bubble burst? Pakistan in melt-down? Best Olympics ever in China? Reduced HR procedural burden on employers? Our guesses for the main events of 2008
The economy
World
The OECD are predicting a slowdown in the economic growth of their own member states but are also predicting that growth in emerging market economies will make the landing somewhat softer than it might have been. With America, Japan, UK and European economies slowed by the credit squeeze and falling housing markets, growth in Angola, Sudan and other countries will be fuelled by buoyant oil prices and China will continue to experience double digit growth. Indeed, according to the OECD, only the basket-case that is Zimbabwe will show negative growth and, whilst Canada, the US, Japan and Italy will be amongst the slowest growing ten economies in the world at least they will continue to experience growth, albeit at 2% or less.
US
According to the American Dialect Society, the word of 2007 was sub prime which might suggest that 2008’s word of the year could be recession. As ever, there is precious little by the way of consensus amongst economists, but the range of predictions for the US economy currently range from grim to grimer. Writing in January, the Economist reported that the use of the word ‘recession’ in the US press suggested that the slow down had already begun, but predictions with a greater degree of gravitas are less certain. Most of Wall Street seem to believe that a recession will be avoided (the current odds are put at 40%) but Morgan Stanley are predicting a mild recession in the second half of the year ahead, Merrill Lynch think that it has already started and Goldman Sachs say that ‘recession has already arrived or will do shortly’. Certainly, job figures released in December make uncomfortable reading and the rising cost of energy is a concern but there are positive indicators too – the weak dollar and strength in emerging economies may well boost exports, lower interest rates (current betting is below 3% this year) will pump some adrenaline into the domestic market and, whilst the housing crisis will linger into mid-year and beyond, the feeling seems to be that the worst is over. Cautious optimism is summed up by a Business Week poll of forecasters which predicted growth slowing to around 2% (vs. 2.6% in 2007) and David Rubenstein, Head of Private Equity firm Carlyle Group ‘It’s a bump in the road, but not an unhealthy one’. This being an election year, the Democrats can gnash their teeth at the failings of the Bush Administration but much depends on the corrective measures which the Fed are due to announce at the end of January.
UK
Whilst the effect of the collapse of the mortgage market in America has yet to be truly felt in the availability of credit for UK domestic mortgages (helped by the slow-down of the housing market leading to a reduction in demand) commercial property worldwide and in the UK is already showing the strain. The Bank of England revealed in November that lending to commercial property companies was running at 9% of domestic lending, a figure higher than the previous peak of 1989-1990 which was followed by the property crash. There is certainly a lot of speculative investment in the market which will make the current corrections to property last longer than might otherwise have been expected, particularly as the domestic buy to let market, already moribund according to some analysts, will be the first to flood the market with property that won’t sell and drive house prices down, maybe by as much as ten per cent. With retailers queuing to announce disappointing Christmas sales, UK consumers seem to have reacted to the Northern Rock fiasco, the credit squeeze, the interest rate tightening since the middle of 2007 and the recent hike in energy prices by keeping their pennies in their pockets, for the time being at least. As with the US, though, there are strong mitigating factors. Corporate balance sheets are currently strong, leading to the potential for high volumes of merger and acquisition activity, the loosening of credit from the Bank of England (our current bet is 4.75% or less through the year) seems set to balance any slow down on domestic finances and while the Government and public sector unions continue to arm-wrestle over inflation controlling pay deals, salaries are still growing at around 4% once bonuses are included and employment continues to be strong across the UK economy. As with the Americans and as Gordon Brown’s January visit to China demonstrates, growing markets look set to at least minimise the effect of a slow down with European and American trade and growth of more than 2% still seems likely, despite the impression that the BBC’s slightly hysterical financial reporting may give at ten o’clock each evening.
HR
If the economy requires a crystal ball, the runes seem a little easier to read for the changing nature of employment in the year ahead. 2007 saw a raft of social legislation effecting the workplace – from increased maternity and holiday leave through to the smoking ban – and it is easy for employers to wonder where it may all end. Whilst the end certainly isn’t in sight, the good news was that the Autumn Queen’s speech gives us a reasonably quiet legislative year in prospect but there are still plenty of dragons out there for the unwary. Shortage of skills and talented recruits continue to dog growth in many businesses and the spread of internet recruitment will drive lower transaction costs in finding new staff but not really change the current dynamic – it is a candidate’s market and will continue to be so. The increase in holiday entitlement from last year has evened out the offering from most businesses (like maternity leave, the statutory provision is now sufficiently generous to prevent most employers exceeding the demands of the law) and with flexible working now reported to be an offering in 95% of work places, smart businesses will look for ways to differentiate themselves in the market and make an offer attractive to the ‘generation Y’ and ‘millennials’ who now form the backbone of the new labour market. Those employers inclined to recruit illegal immigrants face punitive new penalties including up to 2 years in prison in some cases.
Discrimination legislation made the news in 2007 through the introduction of age legislation and the extension of existing provisions into political views, amongst other areas and 2008 will continue the trend with new regulations on Sex discrimination due in March and preparation for a 2009 Bill aimed at consolidating all legislation under a single Act.
Information and Consultation regulations will be extended to 50+ staff in April 2008 as will the scope of the Occupational and Personal Pensions Regulations and ACAS are due to produce a new code of practice on disciplinary procedures following the Employment Simplification Bill (sic) and the repeal of the unjustly unpopular statutory dispute resolution procedures. Look out for a whole new growth industry in consultants peddling ‘conciliation’ services and the extension of the ‘Polkey’ principle by Tribunals whereby employers will acquire strict liability for minor procedural breaches even where they can demonstrate that it would still have dismissed the employee had the procedure been followed in full. TUPE and redundancy are unchanged but are likely to generate more traffic through the increasingly busy Tribunals as the effect of changes in the economy are felt and the confusions over 2007 changes to TUPE regulations bite. Tightened procedures over the treatment of Agency workers in April will need care for businesses to avoid becoming the de facto employer of agency staff and the impact of the Corporate Manslaughter and Corporate Murder Act also due in April will be huge.
So, yes the crunch will continue but it won’t drag the world economy any more than it has done already, the Clintons will be returned to the White House, housing will glide downwards rather than emulate a Boeing 777 at Heathrow, Musharraf will lose international support and be replaced as the beginning of an improvement in Pakistan and the sheer weight of investment in cash and political capital will ensure a great Olympics at Beijing despite continuing concerns over drugs use by top athletes. Sadly, employers will have more concerns and legal liabilities (including criminal ones) at the end of the year, not less. Oh, and QPR will end the year in an automatic promotion spot from the football league championship. But then, what do we know?
