Economies will struggle to cope with slow growth, says the Forum of Private Business.

While the 2008 recession was not as deep or prolonged as the infamous 1930s Great Depression, the UK's economy is in danger of taking far longer to recover this time round. That is the warning from the Forum of Private Business’s Economic Adviser, Professor Phillip Wyman, as he looks to 2012 and what the New Year has in store for small businesses.

Professor Whyman, a lecturer in Business and Economics at the University of Central Lancashire, is forecasting another stormy 12 months for SMEs as the UK, European and World economies struggle to cope with prolonged slow growth, the euro debt crisis, plummeting consumer confidence and spiralling unemployment.

“The current economic situation is serious,” said Professor Whyman. “GDP growth for 2011 is likely to come in below 1% once figures are in, and predictions for next year range from 1.2% to 0.5%, with the Office for Budgetary Responsibility (OBR) predicting 0.7% as its mid-point forecast. “This is very weak indeed, and indicates that the economy is more fragile than most commentators realised.”

As a consequence Professor Whyman said he expects UK unemployment to reach 2.9 million, a figure he says is down to private sector expansion stalling in the face of global uncertainty – but less than the 3 million plus predicted by other economic commentators.

“Job losses in the public sector have not been compensated for by a rapid expansion in private sector employment, as predicted by the OBR a year or more ago, and it’s not surprising why this has not occurred,” he explained. “Employers base investment and hiring decisions upon expectations for the future, and, with the current weak trading conditions, external factors such as the eurozone crisis, falling consumer expenditure and a continued reluctance for financial institutions to provide inexpensive loans for expansion purposes, these expectations are unlikely to improve in the near future unless something changes.”

“What is becoming increasingly apparent is that, while the 2008 ‘credit crunch’ recession was not as deep as the ‘Great Depression’, the UK is in danger of suffering a far slower, more sluggish recovery. This could be potentially more damaging in the medium term.”

He concluded: “Ultimately, economic activity depends upon demand. If aggregate demand is too low, government needs to step in to make up the shortfall.  This is, however, a tricky balancing act. 2012 may well show just how good – or not – the government is at it.”

Does anyone really understand economics?

By David Jordan, Deputy Editor, The Mover

So, yet another gloomy forecast from an expert economist warning us all of bad times to come and even predicting within a few percentage points what GDP growth will be during the next twelve months. As mentioned in Prof. Whyman’s article the Office for Budgetary Responsibility (OBR) - the quango set up by the government in 2010 to monitor public finances and the economy - is now predicting growth for 2011 will be below 1% with a figure of 0.7% for its mid-point 2012 forecast.  Well that’s not what they said at the end of 2010 when Chancellor George Osborne announced in his autumn statement that growth in 2011 would be 2.1% - revised down from an earlier OBR figure of 2.3% - and that growth in 2012 would accelerate to 2.6%; increase further to 2.9% in 2013 and slow down to 2.7% in 2014. According to Prof. Whyman the OBR also predicted over a year ago that job losses in the public sector would be compensated for by a rapid expansion in the private sector, something that has clearly not come to pass.

It seems that forecasting what is happening in the economy is not, to put it mildly, an exact science. The truth is there are so many variables and unpredictable factors that Albert Einstein himself would find it well nigh impossible to arrive at any meaningful figures. To make matters worse the pundits, including the governor of the Bank of England, Mervyn King, never tire of spreading gloom and despondency based on figures that are shown time and time again to be wrong.

So what should we make of it all? Well first we should take everything with a very large pinch of salt. Most business owners I speak to are doing quite well and are cautiously optimistic about the future. While it may not be a time to order that new Ferrari, putting a hold on everything based on what the OBR boffins say will only make things worse. Let’s approach the rest of 2012 with a spirit of optimism and not listen too closely to what the experts say, after all they’ve been wrong before!