You may have thought 2011 was bad – but just how grim will 2012 be? Bill Gleeson reports

NOW that we are getting over the Christmas and New Year hangovers, it’s time to face up to what 2012 has to offer.

It may be a big year for Olympic Games host city London, but, for the rest of the country, the outlook looks bleak, at least for the first six months.

A fresh recession in the eurozone, slow growth in the US, a slowdown in China and continued political instability in the Middle East all look set to make conditions extremely quiet in Britain.

Just how bad it could get in Europe depends in large measure on whether an adequately plausible political solution can be found to the Continent’s huge sovereign debt problems afflicting a handful of mostly southern European nations. Badly managed, this crisis could spill over into the global banking system, effectively inducing a second credit crunch. Our European export markets would freeze up and UK economic output could shrink even more than it did in the 2009 recession.

On the other hand, a deal might be struck, causing things to pick up again in the second half of the year.

Peter Stoney is an economist with the Liverpool Research Group in Macro- economics.

Normally, his growth forecasts are at the optimistic end of the range, but this year he says: “It’s not looking too brilliant now.

“The main issue is the overall sense of pessimism coming through.

“Output and employment are not as good as they were perceived to be 12 months ago.

“Back then, the BRIC countries were driving growth, but that’s changing because China, Brazil and India are putting the brakes on and the US is not looking as auspicious as it was.

“The euro is showing signs of cracking.

“There is a great deal of uncertainty in Europe and therefore the global economy.

“How this affects Britain is the $64,000 question.

“The Macro Group forecasts 1% growth for next year, but even that could prove optimistic if the eurozone cracks even more.

“I take the view the accord last month was a sticking plaster.

“The accord was for more austerity, rather than the ECB doing what the Bank of England is doing by encouraging monetary expansion. Britain is better placed than the eurozone.

“The Bank of England is much more effective than the ECB, so we are better insulated.

“We think the Bank of England has got the inflation forecast right. It will drop next year, but they are playing with fire. If inflation does not come down without increasing interest rates, they will look silly. They are on a tightrope and could end up jam side up.”

Professor Tom Cannon, head of strategic development at the University of Liverpool Management School, says the local picture might not be as bad as the national and European outlook implies.

Prof Cannon said: “Clearly it’s going to be a tough year, but on the other hand I don’t feel bad about Liverpool and Merseyside.

“We have already bucked one trend.

“Traditionally, since World War II, we have been first in to recession and last to recover. But this time, we have had more momentum, so we won’t be as bad. The new retail momentum and a cohort of new entrepreneurs have made the difference.

“We have been looking to Asia faster than other parts of the UK. And that’s not just the university, but companies as well.

“For the first time since the war, we now have more positives going for us than negatives.

“The big concern regionally is MBNA, in Chester. Clearly, it’s an important part of our local economy.

“Now the Local Enterprise Partnership has got its act together, it looks like it’s a good group of people: Robert Hough, Steve O’Connor and others. It’s a very good LEP.

“And don’t forget the Global Entepreneurship Congress. It’s a big opportunity to profile the city.”

Liverpool Chamber of Commerce chief executive Jack Stopforth says his members will be approaching the coming year “warily”.

“It’s been a very bruising 12 months for most businesses.

“There is little around to give them a lot of encouragement. We must assume it’s going to be another difficult year.”

Mr Stopforth nevertheless pointed to the results of a recent survey of his members’ prospects for the coming year.

He said: “It’s the usual mixed bag.

“There is a resilience in terms of domestic orders.

“Export orders are down. Export sales were up.

“There are a couple of export exemplars, such as Jaguar Land Rover and the Evoque.

“The new car is doing well. Halewood is fully manned up.

“Yet all the commentators are telling us it’s hard, but I think we are not doing so badly in the North West.

“That’s masked by the national figures, but, yes, businesses are right to be cautious.

“I do feel nervous.

“Unemployment will continue to rise, not necessarily dramatically, but will continue to rise.”

Phil Orford, chief executive of the Forum of Private Business, said: “With 2012 expected to be another difficult year, one thing is certain – entrepreneurs will continue to show courage and creativity in the face of adversity. Of course, they will also need enterprise policies that free them to grow and create jobs.

“The continuing scarcity of affordable credit, rising late payments, mounting business costs and turmoil in the eurozone, in addition to the perennial problems of tax and red tape, are sapping both cashflow and confidence.

“Clearly, 2012 will again be challenging. If a ‘double dip’ recession is to be avoided, we must create the conditions necessary to fuel small business growth.

“Confidence is low but, despite the difficulties they face, there is some optimism among small business owners. More than a quarter of our members surveyed recently plan to grow in the next six months. Some are even reporting stronger orders and turnover compared to this time last year.

“The Forum is re-energising our campaign, Get Britain Trading for 2012, and we are again asking our members to tell us their fears, hopes and expectations for the year ahead.

“The results will be published early in the New Year, when we hope events such as the Queen’s Diamond Jubilee, football’s Euro 2012 and, of course, the London Olympics and Paralympics will provide a few of the economic ‘bounces’ the UK needs.”

Carl Cross, investment director at Investec, believes that the progress of stock markets next year will depend on whether a resolution to the euro crisis is found.

Mr Cross said: “We have experienced a difficult year in equity markets in line with wider economic concerns. Indeed, it has been a difficult ten years for equities.

“A lot depends on the economy and the resolution to the euro crisis.

“The UK would be impacted by developments on the Continent.

“Within the equity markets, there is likely to be a search for yield, given the progress of the UK gilt market last year and the ongoing low interest rates, which will continue for some time yet.”