Outlook: Immediate crisis averted, but new dangers lurk

Union recognition; Broken Mirror
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The Independent Online

The Afghan war seems all but over, the stock market is back to its pre-11 September level, airline traffic is recovering even more swiftly than it did in the aftermath of the Gulf War, the tills are ringing out for Christmas, house prices are on the rise again, why, even the claims-laden insurance industry anticipates boom times ahead with premium rates soaring alongside burgeoning demand from a more risk-averse world. In terms of business and economic impact, it is almost as if 9.11 never happened at all.

The Afghan war seems all but over, the stock market is back to its pre-11 September level, airline traffic is recovering even more swiftly than it did in the aftermath of the Gulf War, the tills are ringing out for Christmas, house prices are on the rise again, why, even the claims-laden insurance industry anticipates boom times ahead with premium rates soaring alongside burgeoning demand from a more risk-averse world. In terms of business and economic impact, it is almost as if 9.11 never happened at all.

Compare that to the immediate aftermath just three months ago. It was a day, most agreed, that had changed the world for ever, a day that would plunge the world into recession, cripple the insurance industry, ground the airlines, and generally stifle any further progress in globalisation.

Well, it doesn't seem to be working out that way. Yes, the US and world economy are now either in recession or heading that way, but it's a moot point as to whether this was caused by the events of 11 September or was happening anyway. Probably the most that can be said for the terrorist atrocities is that they added a further push on the throttle.

As for Britain, the direct effects seem very limited indeed outside the relatively narrow confines of the tourist industry. Consumer confidence has remained robust and there is a widely held view, possibly self-fulfiling, that at some stage next year, business confidence will begin to revive too, and with it business investment and job creation. In part this is down to the policy action taken since the attacks on New York and Washington – steep cuts in interest rates, higher government spending, and/or tax cuts in the US and elsewhere.

But it is also because of the realisation that economically, things are not so very different from the way they were before. They might actually be better, because of the sharp reductions in interest rates since enacted. Prior to 11 September, there was a danger of the world sleep walking into recession. The attacks served as a wake-up call.

None of this means we are out of the woods. Most businesses are still cutting back sharply and some business leaders anticipate much worse to come early in the New Year. A groundswell of redundancies has been bottled up for Christmas, and once the festive season is over, it will be allowed to flow free again. The test for consumer spending will be after Christmas, once the P45s start raining down.

Further out, there are other dangers. Nobody yet knows what the effect of all that fiscal and monetary easing might be, but one possibility is that things begin to boom again as robustly as a couple of years ago. Admittedly this doesn't seem hugely likely. Investors and bankers have been so badly burnt by the TMT bubble, that it will be a good few years yet before the lessons are entirely forgotten.

Even so, it is not just the bubble sectors of technology, media and telecommunications which have been cutting back. Across the board in industry there have been very considerable capacity reductions. Eventually that might feed through into supply shortages and price inflation. There was little sign of that in yesterday's producer prices figures, but it would be unwise to bet on inflation being gone for good. And if it hasn't, household and corporate debt, both high by historic standards, will begin to feel very uncomfortable indeed.

Union recognition

TWO THINGS set Honda apart from the rest of the motor industry and in particular its Japanese counterparts. First, it has never accepted government money to build a manufacturing plant. Second, it prefers not to recognise trade unions.

Yesterday the second of those maxims was breached when workers at Honda's Swindon car plant voted in favour of union recognition by a resounding 72 per cent majority. The 4,000-strong workforce will henceforth be represented by the Amalgamated Engineering and Electrical Union for the purposes of collective bargaining.

It scarcely needs saying that Swindon would still be a union-free zone today were it not for the fact that Honda was forced into balloting the workforce by Labour's new law on trade union recognition. The company's argument that Swindon did not have a union before the Government legislated only because the workforce never asked for one is sophistry of the highest form.

The more interesting question is whether it will make a blind bit of difference, other than to bring a warm glow to the cheeks of the AEEU's Sir Ken Jackson. The answer is it probably won't. Swindon is not Longbridge and Honda is not British Leyland. Red Robbo is as much ancient history as the late and unlamented Morris Marina. The car industry is already one of the best payers around and Honda is among the best payers in Swindon. Each job it advertises attracts ten applications, not because Swindon is a high unemployment area (the jobless rate is 2 per cent) but because people (sorry, associates) like working there.

Nissan and Toyota have had trade unions ever since they began building cars here and Honda ought not to lose much sleep by having had to join the club. A far bigger issue for the company, and indeed all other inward investors, be they Japanese, American or whatever, is the likelihood of Britain joining the single currency.

So far, Britain's failure to join has not been reflected in the official figures on inward investment, a fact seized on by opponents of the euro as evidence that inward investors don't care a sausage about the single currency. Actually, the opposite is true. Investment decisions tend to be taken a long way in advance, and many of those showing through in the figures at the moment were based on the assumption that Britain will have joined by the end of this parliament.

If there is one ballot a majority of big businesses would like to see Tony Blair commit to this Parliament, it is a referendum on the euro.

Broken Mirror

PHILIP GRAF, chief executive of Trinity Mirror, would never say so publicly, but he must be feeling more and more uncomfortable with his high-profile national newspaper titles. Mr Graf is from the regional newspaper side of the group, and this is the business he knows and can demonstrably make work. It is also the part of the group from which all the synergies and cost savings were derived from the merger of Trinity with Mirror Group.

The latest figures will only have confirmed his sense of bewilderment. Advertising in the group's national newspaper titles was down a stomach-churning 20.7 per cent in November and December doesn't look like being any better. Meanwhile, the regional titles continue to demonstrate considerable resilience.

Mr Graf has already ordered a review of how he might make the national titles more profitable but in such a competitive market it's going to be tough. The national titles ought to make reasonable profits, but most of what they earn is gobbled up by promotional spending, so the bottom line looks poor by comparison with regionals.

For choice, Mr Graf would sell. As trophy assets, the national titles are in theory worth a lot more than their profitability would warrant, but who's going to pay a fancy price in today's environment. Mr Graf looks to be stuck with his albatross for a while longer yet.

j.warner@independent.co.uk

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