Five predictions for the economy and what to do about it

Roger Martin-Fagg made five predictions for the economy at the AEO Conference 2008. This is the Client Director Henley Management College economist who has made many gloomy predictions in the past and said at the same event last year

there has been a huge party and we lost our senses. Now for the hangover.

But it was not all gloomy. Martin-Fagg also came up with suggestions as to what to do about it. First the predictions.

1. UK economy to remain in recession until end of 2011 and the US until the end of 2010.
2. UK economy to shrink by 6% over next three years or £50 billion.
3. Asian economies to suffer far more they had imagined.
4. UK banks to go to government for £60 billion of further funding by next summer, effectively nationalising them.
5. UK savings ratio already going back up but needs to get to +4%. Each 1% represents £7 billion out of the economy. 

What to do about it?

1. “Take market share by being distinctive”. Expensive, top end and cheap, bottom end will do far better in any business sector. It is those in the middle who will suffer.
2. “Invest in anything to do with old people”. Care homes, drugs for the elderly.
3. “Invest in new kit”. Any company with money should continue to invest, particularly in innovative, new technology.
4. “Don’t drop your prices, rather introduce small price increases”. Keep your margins up and put any price rises down to exchange rates or whatever.
5. “Only start buying assets again when people still don’t think that we have reached the bottom of the recession”. He suggested not for another 18 months at least. 

What part will digital play in a downturn?

Here is a gloomy first slide of a presentation by Roger Martin-Fagg, Client Director Henley Management College, on the subject The UK Economy: Soft landing, Recession or Full-blown Depression? He gave the keynote address at the recent Summer Eventia, the events industry annual event, on 6-8 July. His point – that the price of oil has a very direct impact on the world’s economies.

The good news, and my second slide, is that the only increase in marketing spend during Q1 in the UK has been digital. The figures come from the speech of Neil Jones, from Avantgarde, on the subject Economic Impact on Marketing Spend: The Bellwether Report and its Implications for Experiential Activity, also at the same event.

But the apparent robustness of digital in a declining market will not fill all the holes. Another of Jones’ slides points to the proportion of the total spend that digital played across marketing in 2007 which was no more thatn 8.7 per cent.

Meanwhile, this week it became clear in an article in yesterday’s Barron’s Tech Trader Daily that web companies themselves were not immune from the economy with companies such as Google, Valueclick and all beginning to report declining earnings. So the question is this. As pure web companies become battered in this economy, will digital revenues remain robust for those companies for which it is just part of their revenue? Or will they too succumb to sentiment?