The Institute of Directors (IOD) has concluded that the economy is set for further deceleration...
The Institute of Directors (IOD) has concluded that the economy is set for further deceleration based on the results of its Business Opinion Survey for the second quarter of 2001. Most of the forward indicators, including order books, suggest the slowdown will continue in forthcoming months.
Ruth Lea, Head of the Policy Unit at the IoD, said: "Our latest survey suggests that reported output growth and general business optimism may have stabilised in the second quarter after slipping for the previous four quarters. But there were some more worrying indicators. Both total and export orders were down - as were profits and growth expectations. And job creation was weaker. This all suggests that the economy is set for further deceleration. The overall picture is one of a still growing economy - but a slowing economy - with a manufacturing sector, which continues to under-perform the rest of the economy. One bright spot is that inflationary pressures remain benign.
The survey revealed profits were weaker and capacity utilisation lower in the second quarter. Orders, including export orders, were significantly weaker especially in manufacturing. Employment balances, expected output balances, capacity utilisation and profits balances also deteriorated. Investment intentions were broadly weaker especially for investment in training and plant and machinery.
Price pressures remained weak, with many more respondents reporting increased costs than increased prices - putting a squeeze on margins. Manufacturing industry continued to under-perform the general economy. Both total and export orders slumped in June after looking quite firm in March, which, says the IoD, bodes badly for manufacturing in the near term.
On a brighter note, inflationary pressures remained benign and business optimism was stable in the second quarter after showing four consecutive quarters of decline since March 2000. The data on reported output growth were also unchanged.
Lea added: "We remain concerned about the downside risks to the British economy. Even though we remain optimistic that a hard landing can be avoided in the US, there still has to be a risk of a serious downturn. The downgrading of Euroland's growth prospects since the beginning of the year has been very disquieting - Germany's near term prospects are especially worrying. And the economic performance of the Far East, in general, and Japan, in particular, is disappointing. In addition to the deteriorating international environment, nervous equity markets and the cumulative knock-on effects of the Foot and Mouth epidemic can only continue to damage confidence and economic activity."
"In 1998 we were confident that the British economy would cope with the market turbulence of that year - and it did. But this year an insidious combination of adverse events is increasing the prospect of significant slowdown. Even though our central case is still one of growth stimulated by fiscal expansion and cuts in interest rates, the risks are on the downside - despite a seemingly buoyant housing market and positive retail sales."
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