The boom will go bust: here's how to brace yourself

the next recession

Share
Related Topics
Amid the truimphalism of Brighton, remember that this will be the Government that is in power during the next recession.

It is almost impossible to imagine at the top of a boom that there will be another recession, just as it is very difficult to imagine at the bottom of a slump that there will be another boom. Think back 10 years. We were less than three weeks away from Black Monday, the stock market crash. True, that had little immediate impact on the real economy, for the great housing boom of the summer of 1988 was still to come and there was to be another couple of years before the early 1990s recession hit home. But think of the mood that autumn - a newly-elected, confident government telling us that there had been a step change in the performance of the British economy, soaring consumer confidence, strong house prices, low unemployment - and it is not difficult to see a parallel with the present. Anyone with any sense of history (or even a half-decent memory) will feel a certain unease.

The trouble, of course, is that things are never exactly the same. There is such a thing as an economic cycle, but each cycle is different in its shape. The world economy is also hit by shocks, and each shock is different too. So it is impossible confidently to predict that there will be a deep depression during the early years of the next century - any more than that there will be a stock market crash in the next couple of weeks. But one can say with a pretty high degree of certainty that there will be a sharp slow-down in the world economy at some stage in the next four years; and one can say, with reasonable certainty, that it will start within the next couple of years. The present good times will roll on for a bit, but they will not roll on for ever.

In what ways might the next cycle be different from the previous ones? For a start I don't think it will be preceded by a surge in inflation, or at least not the sort of surge that preceded the early 1970s, the early 1980s or the early 1990s recessions. It seems pretty clear that the long- term trend in inflation worldwide is down, and that the forces which have been driving it down for the last 15 years will remain in place.

Next, looking at the impact on the UK, the recession will have its most serious effects on different sectors of the economy. In the early 1980s the manufacturing sector was most severely hit, for the slump was associated with very strong sterling, causing damage to exports. In the 1990s it was the property sector, for that was the most over-borrowed part of the economy when interest rates shot up. Now manufacturing is lean, property wary, and next time the pain may in any case be more evenly spread. Still, I would worry about parts of the economy which seem particularly buoyant at the moment: areas like entertainment and finance. I suspect, too, that the next recession may see a greater squeeze on the public sector, as tax revenues fall and governments are unwilling (maybe unable) to borrow so much to cover the gap.

But I suppose both the greatest uncertainty and the most important influence on the shape of the next recession will be the shock or shocks that trigger it. Recession tends to be accompanied by higher interest rates. In the 1970s and 1980s there were the two shocks which bumped up inflation which then had to reined back by high rates; in the early 1990s (for Europe at least) the surge in rates was associated with the costs of German reunification.

While shocks, by definition, are unpredictable, you can see some candidates looming. For example, I'm not sure that we have yet seen the full impact of the loss of confidence that has taken place in East Asia since the summer. That is probably not big enough to affect the whole developed world, but it will be pretty rough for Japan, the big economy most closely affected. Here in Europe there will be the "euro" shock - disruption associated with the new currency, if it happens - or, in a rather different way, if it doesn't. While, in the long-term, a single European currency might bring economic benefits, in the short-term there will be considerable costs.

Then, for the world as a whole, there will be the millennium bug, the need to re-program computers to cope with the year 2000. Rationally, that ought not to be a shock at all, because we know that the year 2000 will happen. It may pass without any dire effects on the world's computers, but it is at least possible that there will be business failures as a result of companies not being paid. Intellectually it is ludicrous that there should be a problem at all, but we simply don't know.

Shocks being shocks, though, the thing that unsettles the world at the end of the century will probably turn out to be something that has never even crossed our minds.

So what should we do? High-falutin' stuff about macro-economics from journalists is about as useless as enthusiastic self-congratulation from politicians. What should ordinary people do to prepare themselves for harder times? I suppose the practical message is that people should seek to make their finances and their jobs as bullet-proof as possible while there is still time.

This would be a Puritan message. People should save now, setting aside cash in different forms so that if, say, the stock market does tumble, they will not suffer unduly. They should assume that, come retirement, they may have to rely largely on their own pension, rather than one paid for by the next generation of taxpayers. They should try not to borrow unnecessarily. They should be aware that no job is safe, that within a couple of years the unemployment rate will start rising again, and that accordingly they should build their skills and qualifications now to improve their chances of retaining a job later.

Not a lot of fun? Not quite the spirit of Brighton? Of course Tony Blair warned of hard times ahead but I don't think recession was quite what he had in mind. The really hard bit is remembering that the world at the top of the boom is a very different one from the one at the bottom of the slump.

React Now

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
iJobs Job Widget
iJobs General

Recruitment Genius: Business Support Administrator - Part Time

Negotiable: Recruitment Genius: This is an opportunity to join the South West'...

Recruitment Genius: Business Development Executive - OTE £40,000

£25000 - £40000 per annum: Recruitment Genius: An expanding business based in ...

Recruitment Genius: Field Sales - Business Broker - Scotland

£35000 - £40000 per annum: Recruitment Genius: As an award winning and leading...

Recruitment Genius: Field Sales - Business Broker - North East Region

£35000 - £40000 per annum: Recruitment Genius: As an award winning and leading...

Day In a Page

Read Next
 

The Top Ten: Words In Christmas Carols That Ought To Be Revived

John Rentoul
Polish minister Rafal Trazaskowski (second from right)  

Poland is open to dialogue but EU benefits restrictions are illegal and unfair

Rafal Trzaskowski
Homeless Veterans appeal: 'You look for someone who's an inspiration and try to be like them'

Homeless Veterans appeal

In 2010, Sgt Gary Jamieson stepped on an IED in Afghanistan and lost his legs and an arm. He reveals what, and who, helped him to make a remarkable recovery
Could cannabis oil reverse the effects of cancer?

Could cannabis oil reverse effects of cancer?

As a film following six patients receiving the controversial treatment is released, Kate Hilpern uncovers a very slippery issue
The Interview movie review: You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here

The Interview movie review

You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here
Serial mania has propelled podcasts into the cultural mainstream

How podcasts became mainstream

People have consumed gripping armchair investigation Serial with a relish typically reserved for box-set binges
Jesus Christ has become an unlikely pin-up for hipster marketing companies

Jesus Christ has become an unlikely pin-up

Kevin Lee Light, aka "Jesus", is the newest client of creative agency Mother while rival agency Anomaly has launched Sexy Jesus, depicting the Messiah in a series of Athena-style poses
Rosetta space mission voted most important scientific breakthrough of 2014

A memorable year for science – if not for mice

The most important scientific breakthroughs of 2014
Christmas cocktails to make you merry: From eggnog to Brown Betty and Rum Bumpo

Christmas cocktails to make you merry

Mulled wine is an essential seasonal treat. But now drinkers are rediscovering other traditional festive tipples. Angela Clutton raises a glass to Christmas cocktails
5 best activity trackers

Fitness technology: 5 best activity trackers

Up the ante in your regimen and change the habits of a lifetime with this wearable tech
Paul Scholes column: It's a little-known fact, but I have played one of the seven dwarves

Paul Scholes column

It's a little-known fact, but I have played one of the seven dwarves
Fifa's travelling circus once again steals limelight from real stars

Fifa's travelling circus once again steals limelight from real stars

Club World Cup kicked into the long grass by the continued farce surrounding Blatter, Garcia, Russia and Qatar
Frank Warren column: 2014 – boxing is back and winning new fans

Frank Warren: Boxing is back and winning new fans

2014 proves it's now one of sport's biggest hitters again
Jeb Bush vs Hillary Clinton: The power dynamics of the two first families

Jeb Bush vs Hillary Clinton

Karen Tumulty explores the power dynamics of the two first families
Stockholm is rivalling Silicon Valley with a hotbed of technology start-ups

Stockholm is rivalling Silicon Valley

The Swedish capital is home to two of the most popular video games in the world, as well as thousands of technology start-ups worth hundreds of millions of pounds – and it's all happened since 2009
Did Japanese workers really get their symbols mixed up and display Santa on a crucifix?

Crucified Santa: Urban myth refuses to die

The story goes that Japanese store workers created a life-size effigy of a smiling "Father Kurisumasu" attached to a facsimile of Our Lord's final instrument of torture
Jennifer Saunders and Kate Moss join David Walliams on set for TV adaptation of The Boy in the Dress

The Boy in the Dress: On set with the stars

Walliams' story about a boy who goes to school in a dress will be shown this Christmas