2008 was horrible and all the indications are that 2009 will be even worse. Richard Steer tries to muster a little optimism for the year ahead
Now that we are all back at work and the sustainable Christmas cards have been filed in the regeneration skip, to what do we look forward in 2009? Surely whatever happens, it cannot be as bad as last year when, from October onwards, work seemed to disappear into a deep abyss that swallowed up all festive cheer with it. Without wishing to stray too far into almanac territory, I think it is worth launching forward into 2009 with some predictions.
Currently, we are in something of a holding pattern as an industry. I don’t want to sound like I am brandishing the sword of Damocles but I suspect those who were in the first wave of redundancies could soon be joined by more departees unless there is a marked upturn, and quickly. As well as a round of wage cuts, reductions in the working week and future job losses, in my view the industry is likely to be reduced by 20-25% over the short term. As far as I can see, few sectors will be unaffected, including quantity surveying, architecture, contracting and project management.
Developers are already holding on to any cash reserves they may have, waiting for the market to bottom, and until they move we are all frozen into a hiatus. The smaller consultancies are very vulnerable indeed and could well be strangled into submission by a lack of cash and ongoing work.
As well as a round of wage cuts, reductions in the working week and future job losses, in my view the industry is likely to be reduced by 20-25% over the short term
Which brings me to the troubling issue of cash flow … Clients, like the banks, seem to be preserving their cash at all costs, which means that working for someone who will stick to the agreed 30-day payment terms is about as likely as finding the latest Russell Brand DVD given away free with the Daily Mail. This is not helped by the fact that the banks that would normally tide you over until payment was received are suddenly uninterested – if you work in construction you have all the attractive qualities of malaria to the local bank manager.
For businesses forced to shed staff, there is also the sudden cost of redundancies. You may feel little sympathy for the corporate bean counters grappling with this issue, and I appreciate that it is much more painful for those on the other end of a P45, but it is also draining for those left behind, both financially and emotionally. For them there is the difficult challenge of managing morale and keeping the current workforce motivated. When they have time on their hands, the canteen conversations are not upbeat. Everyone is worried for their future.
At the macro level and on a more positive note, if we can get through the next two quarters then those left standing may well be able to be benefit from a loosening of the bank’s purse strings as the LIBOR rate slides in line with access to increased funding. It is all about confidence, especially related to the US markets that arguably dragged us into the mire in the first place. In 2009 we should see the first signs of the “Barack bounce”.
The stock market will take a long time to regain the trust of the middle class investor, so property may seem a safe haven
A new president means a fresh start and, importantly, a new economic team influencing the market. He has already spoken of increased investment in the public sector, while in the UK we are still seeing procurement in education and health. Also, call me a cynic, but our own government is up for re-election in 2010, hence we may well see a mini boost from the summer of 2009.
Interest rates have also now reached an unprecedented low. These will take time to feed into the public consciousness but many are finding that there is little point in leaving money in the bank with negligible interest rates on offer. The stock market will take a long time to regain the trust of the middle class investor, so property may seem a safe haven. There will be a degree of hesitation as we wait for prices to reach the bottom but the demand for housing has not disappeared, it has just been parked.
Working abroad is a possibility for some and we have seen an influx of applications from those in the business that see their future in Qatar, Abu Dhabi or Libya. Asian economies are also still expanding. I appreciate that this is hardly the utopian solution for many with young families but there is opportunity outside the UK.
As the mists from my crystal ball are finally clearing, there are times when I wonder whether my future as a psychic is threatened by my past record. This time last year, I confidently predicted that the issue of corporate social responsibility was going to be capturing the headlines in 2008. It never happened as the credit crunch, future of the world economy and global downturn seemed to be regarded as more important. It’s funny how priorities change …
Richard Steer is senior partner at Gleeds