E&Y Item Club: Economic growth will struggle this year

| January 18, 2010 | 0 Comments

The latest quarterly report from the Ernst & Young Item Club is forecasting “a decade of pain” for the UK economy, with growth only expected to be 1% this year.

The UK economy, which has now contracted for six consecutive quarters, has been lagging behind other economies and is now the last major economy that is still in recession.

Official figures on 26 January will confirm whether the economy saw positive growth in the fourth quarter.

Meanwhile, the influential report said unless exports grow, the economy faces stagnation.

Professor Peter Spencer, the Item Club’s chief economic adviser, said: “After a decade of relying on the domestic consumer, firms have to start chasing overseas customers.

“The consumer is completely cashed out - with consumer spending likely to increase by just 0.4% this year,” said the Professor.

“The UK’s only hope of significant [economic] growth is a rebound in overseas exports and income - as well as inward investment,” he added.

In a bid to boost exports, he believes it is crucial that the “ UK rejuvenates its overseas investment model and starts selling into countries such as China, where we have an exceptionally low market share compared to our leading competitors.”

The Item Club warns that it will be difficult to see where growth will come from once stimulus measures have been withdrawn.

However, the report does state that historically low interest rates and modest inflation will aid economic recovery but a further rise in unemployment is a possibility.

In related news today, the International Monetary Fund (IMF) warned that the global recovery “remains very fragile“.

Dominique Strauss-Kahn of the IMF said the global economy has been stronger than expected and China and developing Asian economies are leading the way in the global economic recovery but warned all major economies of an early withdrawal from stimulus packages.

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