Looking into the white wall of fog ahead, it’s impossible to discern a safe haven, or the rocks in between. But, says Richard Steer, that doesn’t mean we should lose sight of what we’re about
Those of you looking back at 5 November may mark it as the day we welcomed a US president-elect, with all the hope and anticipation of a messiah. But you many not have realised that 5 November was also National Stress Awareness day, a theme that seems particularly appropriate for those of us budgeting and forecasting for 2009/10. The word “stress” does not come close to describing the emotion I see permeating most sectors at present.
Recently I was asked to comment on the difference between this downturn and previous recessions. In the future, I suspect historians will marvel at how we all went along with the emperor’s new economy for so long. A debt is still a debt regardless of how you bundle, package or leverage it. At some point, someone in the banking system was bound to point out that the great man was indeed naked and everyone else was delusional. At which point, everything changes.
In the seventies, the recession was severe, but it was also gradual. In contrast, the current lack of money in the system has come upon us with a swiftness not experienced since the twenties. Forecasting the cost of materials has become fraught with challenges. There are a truly intimidating number of variables to take into account, and many of them are unknown.
The word ‘stress’ does not come close to describing the emotion I see permeating most sectors at present
The euro is strong and the pound is weak, so core items that come from Europe, such as cladding and lift equipment, have risen in price. However, some argue that fuel costs have lowered so this may counterbalance the cost hikes. This has not yet fed into the production cycle for most items, and subcontractors will also tend to be using up stock. This means that we are not seeing tender prices drop, much to clients’ consternation.
In the last UK recession we were not so hard-wired into the global economy, but now, commodity prices have dropped because of a downturn in demand from Asia and India. This is making cost prediction something requiring skills more akin to those employed by Mystic Meg than a professional QS with a calculator. Things are changing week by week and almost day by day.
Predictably, this has hit different sectors in different ways. The debate about sustainability rages on. This is an area of activity that was in its infancy during the last downturn and now those of us helping clients get their statutory energy performance certificates are seeing a resistance in the market to going any further with environmental audit programmes. I liken it to someone who has had their MOT and gets just enough done to pass the test but leaves getting the worn brake pads replaced until the next service. They know they will need to make improvements at some time. But they are delaying what they see as the non-essentials. It’s a false economy, as they could be saving on heating and lighting in the meantime, but in their eyes it’s not a “have to do”.
Cost prediction presently requires skills more akin to those employed by Mystic Meg than a professional QS with a calculator
For those involved in the education and public health sectors there is currently no sign of projects being frozen or mothballed, and while we’re all waiting with bated breath for the next Budget statement, for the moment it’s “steady as she goes” in the public sector. This is a tried and trusted way of maintaining growth and reducing unemployment but, as has been shown in the past, at some point there will need to be tax rises.
Come 2012, when hopefully the worst of this recession will be in the past, I think we will have done far better than the Primark version of the Olympic Games that is widely predicted. We’re seeing some talk of temporary venues but the International Olympic Committee is keeping a close eye on post-Beijing cutbacks and there will need to be a significant amount of spending maintained. During the seventies, eighties or nineties’ downturns we did not have a large infrastructure project with a massive international profile like this and although it, like Barack Obama, will not be an instant solution to all woes, it is certainly helpful and hopeful. Maybe we should adapt his famous slogan: “Yes we can – probably”.
At a time when bad news seems relentless and we red-pen our way through next year’s forecast, we are still an industry that represents about 8% of GDP, so we need to ensure that we still train and keep the right people, that we do not allow our clients to forget the eco-agenda and that we do ourselves justice by stressing that we are flexible, adaptable and still open for business.
Richard Steer is a senior partner at Gleeds