Plus ca Change Plus ca meme chose?

This month’s blog takes a look at the prospects for 2013 and asks whether we can expect better than the year just gone.

In considering the outlook for the Welsh economy in 2013 it is important to first put Wales’s economic situation in the context of the year just gone. In terms of growth, for example, the reality is likely to be around 0% growth for 2012 as a whole, with the quarterly figures swinging between contraction in the first two quarters to expansion in the third, and probably back to a small contraction in the last quarter of the year.

Recent research by Bibby found that 98% of firms in Wales did not believe the UK government had taken sufficient action to avoid a double-dip recession in 2012 also proved accurate. The outlook for the Welsh economy in 2013, therefore, remains challenging.

For the UK economy the 2013 growth forecasts are again, unsurprisingly, variable, with Price Waterhouse Coopers predicting 1.8% growth and the Bank of England predicting only 1%. At the very least we can expect growth to be below its long term trend level, and Wales will obviously be affected by this in 2013.

For example, low growth is predicted to have a knock on effect on unemployment, though, somewhat surprisingly to many, this has not really occurred during 2012. Whilst the NIESR predicted unemployment in the UK to reach 8.3% in 2012, the latest figure of 7.8% is relatively positive news.

In Wales the latest figure for Wales of 7.9% is also relatively encouraging. The British Chambers of Commerce highlight, however, that this combination of statistics, where the numbers of people employed and hours worked have risen by 1.4% whilst simultaneously GDP fell by 1.2%, implies a 2.6% decline in productivity to explain the UK’s experience of employment growth without economic growth.

Whilst they believe this is partly explained by growth figures that are too pessimistic, they also predict that the recent falls in unemployment, which Wales has shared in, will not last, with an 8.5% unemployment rate by the end of 2013 predicted for the UK as a whole. Unemployment in Wales is also therefore likely to increase next year.

This prediction is based on a combination of effects. Specifically, the planned cuts in public sector employment will continue to feed through, combine with a likely reversal in the productivity falls of the last few years, and likely stagnation in domestic demand and in our main export markets.

Despite this challenging situation, however, there is also at least some positive news. Inflation is predicted by those, such as Price Waterhouse Coopers to fall to 2.3% in 2013, whilst consumer spending growth is predicted to rise by 1.3%.

As for 2012, however, there is little sign of above inflation wage increases occurring for us in Wales, or indeed in the wider UK. Instead the annual growth in pay is predicted to continue rising at a slower rate than prices, by for example the British Chambers of Commerce.

In Wales, overall wage growth is likely to be worse than the UK figure. This is because of our disproportionate reliance on the public sector, the job losses in the public sector and the policies of wage freezes and pension contribution increases determined at the UK government level.

Wales also continues to lag significantly behind the rest of the United Kingdom in terms of Gross Value added per head. The latest GVA per head figures show per capita GVA in Wales is still lowest in the UK, with a GVA per head figure that is only 75.2% of the UK average.

More encouragingly, Wales is closing the GVA gap with the UK average. GVA per head in Wales grew by 1.9% between 2010 and 2011, much faster than the UK rate of 1.4%.

Clearly a repeat of Wales outperforming the UK average in 2013 would begin to represent a positive return for the Welsh government’s economic development policies. It is in exporting in particular, however, where potential opportunities exist.

The British Chambers of Commerce predicts a 5.3% increase in UK exports for 2013 (compared with 2.6% in 2012) as against a 4.1% increase in imports for 2013 (2.6% in 2012). The traditional export markets of the EU are again unlikely to provide much additional demand, however, therefore requiring Welsh firms to look further afield.

As in 2012, therefore, it is the private sector that is the key to the economic revival in these fiscally constrained times. Government and universities can, however, help catalyse and facilitate the private sector to meet the challenge through the encouragement of quality improvements, innovation and entrepreneurship.

The Welsh government has also introduced a number of policies aimed at supporting business in Wales, including Enterprise zones. The recent 2012 Wales Quality and Innovation awards, which also included the Future Entrepreneur awards, illustrated the positive possibilities for the future.

It is the initiatives represented by these types of awards that are vital in highlighting and demonstrating the innovation, entrepreneurship, skills development, quality improvement and leadership required to succeed in the ever more competitive economic times in which we will find ourselves in 2013.

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