By Graeme Davies After a year in which erratic, and ultimately anaemic, growth in the UK has been accompanied by an appalling economic situation in the Eurozone and weak recovery in the US economy, many could be forgiven for thinking that things can only get better in 2013.
And, although it would be pretty hard to surpass the problems the global economy has faced during 2012, significant challenges remain – both at home and abroad – which are likely to shape the opportunities available to Welsh companies.
The biggest imponderable at the present time is how the Eurozone is likely to fare in 2013. Many commentators are expecting some growth from the troubled economic bloc in the second half of the year, but this will only come after what is likely to be a very tough first half.
European Central Bank head Mario Draghi’s huge bond buying programme of mid-2012 certainly appears to have stabilised the Eurozone’s periphery and given the economic bloc some breathing space, but the challenges remain considerable.
Although Greece has renegotiated its debts, there is still a good chance it could exit the Eurozone during 2013. Meanwhile, the recent stabilisation of the situation in Spain, Portugal and Italy is only temporary – there is a very long road to recovery ahead which these countries are only taking their first steps upon.
Indeed, with growth non-existent and unemployment soaring in the periphery and the recent stutters in the Eurozone engine room of Germany, some tough decisions will need to be taken this year as to when the current obsession with austerity gives way to initiatives to encourage growth.
Closer to home, the UK economy is near to suffering from a ‘triple dip’ back into recession with the final quarter of the year likely to see a marginal contraction in economic output in the UK as we continue to struggle with monster debts, both in the public purse and at an individual level.
With consumers grappling with debt, the economy is suffering from a collective lack of confidence, which also means that corporates are reluctant to invest heavily in their businesses when the outlook is so uncertain. The government has tried to kick start things by releasing funds for infrastructure investment, but the short term impact of will be minimal.
Arguably, the economy needs a period of bloodletting where companies who are being kept on life support by ultra-low borrowing costs, are allowed to fail, the banks take the medicine of balance sheet reorganisation and consumers rein in their spending until personal debt is under control.
But this would be disastrous for any government. Hence we are more likely to see a continuation of the status quo with rock bottom borrowing costs helping to keep the economy functioning but with real growth, which is the key to our escape from the hole we find ourselves in, proving frustratingly elusive.
This situation is likely to persist through much of 2013 unless there is a dramatic pick-up in the US economy, coupled with a rebound in emerging markets which could help drag the UK and European economies up on the rising tide.
A pick-up in the US economy is likely should its lawmakers manage to avoid pushing the country over the impending fiscal cliff – there is strong evidence that companies have been hoarding cash during the recent uncertainty and this could be unleashed in 2013.
Meanwhile, China’s economy has shown signs of stabilisation which would bode well for the rest of the emerging world and have a healthy kick-on effect on the developed world too.
The early part of 2013 is likely to remain volatile and unpredictable in the UK and Eurozone, but this should give way to some return to growth in the second half of the year.