10 ways to fix the economy

World flags
By The CA magazine

5 October 2015

In the absence of a global panacea, ten leading business figures consider measures to ensure the ongoing revival of the UK, European and international markets.

2008's global financial downturn altered much of what was familiar, politically and economically, in our world. Cautious optimism is on the rise now, accompanying the green shoots of growth and recovery.  Meanwhile political and economic debate is thriving: there is a wealth of speculation about what actions and policy can bring the global and UK economy back into a position of sustainable long-term recovery. 

The CA magazine canvassed leading figures for their thoughts on what will fix the economy in 2015. Find out more about their forecasting in the latest edition.

1. Douglas Flint CA, Chairman, HSBC Holdings

Douglas Flint CAGetting global and national economies back to growth requires an underpinning of consumer confidence that the future is looking secure in terms of their employment and income prospects. Without confidence, consumers won't consume and investors won't invest for the long term.

How to build confidence is, of course, complex but it is influenced by the rhetoric of governments and the media about the state of the economy and risks to future prosperity.

There needs to be clarity on governments' policy on the physical infrastructure required to support long-term investment.

Once the mood turns to positive it is essential that governments have created an environment conducive to investing for the long term, taking risk and originating the new productive assets that add to the stock of society's wealth.

For this to be achieved, there needs to be clarity on governments' policy on the physical infrastructure required to support long-term investment, for example around energy, transportation and digital, as well as a "clear line of sight" that the financial ecosystem will be ready, enabled and incentivised to support long-term investment with equity, credit and related financial services support.

2. Martin Gilbert CA, Chief executive and co-founder, Aberdeen Asset Management

Martin Gilbert CA One of the most pressing issues facing the global economy is slowing or stagnant productivity growth. Productivity has trailed post-crisis recovery in the major developed economies, in a disappointing and highly unusual way. 

This is important because productivity growth is arguably the main long-term driver of prosperity, enabling countries to expand without hitting constraints in the form of skill shortages or other bottlenecks.

Productivity growth is arguably the main long-term driver of prosperity.

Better educational standards, spending on research and development and encouragement of entrepreneurial activity can all provide a boost to productivity. If policy makers do not act, gains in living standards and global growth could disappoint. If they do, their actions could also help countries offset the negative growth effects of ageing populations.

3. Calum Paterson CA, Managing partner, Scottish Equity Partners

Calum Paterson CA There is a clear trade-off between rapid economic growth today and sustainable economic growth in the future. How can economic growth be achieved in a way that delivers prosperity over the long term?

Globally, there are formidable challenges, such as rapid population growth, increasing demand for natural resources and soaring costs of energy. Environmental degradation is also a serious threat. 

Technological innovation and entrepreneurship should be prioritised.

A key imperative for the 21st century will be greater co-operation between nations in facing up to these challenges, and within nations between government and business.

What it means to be a competitive nation is changing and at a national level the stakes are high. There is a big difference between a high-skilled, high-value, dynamic economy and a low-skilled, low-value, stagnant one. More emphasis will also have to be placed on embedding environmental and sustainable skills in organisations.

As well as skills, technological innovation and entrepreneurship should be prioritised. Long-term economic growth requires a virtuous circle between innovative technological progress and the social, fiscal and market conditions within which this innovation takes place.

4. Keith Cochrane CA, Chief executive, Weir Group

Keith Cochrane CA Technological change and political instability are issues that need to be addressed if we are to create the conditions for sustainable economic growth.

In terms of technology, the benefits of the digital revolution are increasingly being seen in industry through themes such as the "Internet of things", which is building an ever more connected world, with enormous potential to increase efficiency and productivity. 

These benefits can be realised if businesses, government and universities work closely together to fully capture the opportunities on offer.

As technology barriers fall, so too should impediments to trade.

As technology barriers fall, so too should impediments to trade. By reducing trade barriers, you make it easier for businesses to prosper and for economies and incomes to grow.

Confident, growing countries are more stable countries. In Scotland, we've just experienced a very intense period during the independence referendum campaign. Now, across the UK we face an in/out EU referendum. Although these plebiscites have clear democratic mandates, it would be good, from a business perspective, if the issues they are supposed to settle are actually settled. A stable political environment is crucial to giving businesses the confidence they need to invest for the long term and thereby deliver sustainable growth.

5. Jim Pettigrew CA, Chairman, Clydesdale Bank, and president of ICAS

Jim Pettigrew CA It's important to emphasise that we are coming from an unbelievably difficult time, with the global financial crisis only a few years ago. We should not forget the enormity of it.

The real challenge is how to achieve sustainable growth, as we move out of QE (quantitative easing) in the US, UK and Europe. It is widely expected that interest rates will go up, led by the US, either at the end of this year or in 2016. So the question is: how to wean businesses and consumers off QE and the current low interest rate environment?

So what about solutions? As far as the retail banking environment is concerned, we have to strike the right balance to ensure that regulation is consistent with growth.

The real challenge is how to achieve sustainable growth?

We also need a fiscal environment that is straightforward, transparent and not too complicated. Governments need to work together closely because globalisation is here now. For example, the slowdown in the Chinese economy affects the whole world.

We should also not forget infrastructure. From a UK perspective, this is important if we are to be competitive globally, as part of creating the right environment: fiscal, regulatory, and education and skills.

6. Alan Semple CA, Former CFO, Wood Group, and chairman of the audit committee of listed aerospace company Cobham

Alan Semple CA What we need to do is probably not a great deal different from what we have been doing over the past few years. We are now seeing growth in many economies, including the US and UK, albeit at times fragile and subdued.

Given the extensive monetary easing over the last few years, many people may have expected the recovery to have been stronger and quicker than we have experienced, and to some extent this reflected the strained balance sheets of many key economies as we moved into the financial crisis in 2008. 

What we need to do is probably not a great deal different from what we have been doing over the past few years.

With growth now back on the table, we are likely to see the inevitable withdrawal of the policies of monetary easing in the stronger economies, even as easing continues in others further behind in their recovery. The reversal of monetary policy will be challenging to achieve without causing damage to the markets. 

The current low oil price is providing some real challenges for the global oil and gas industry, which is reacting by reassessing existing and future developments, reducing costs, and increasing efficiency wherever possible.

Typically, global economic growth tends to be driven by a number of growth engines, such as the US and China.  The US recovery looks relatively robust; the pace of growth in China is currently less clear and recent currency devaluation and stock market volatility remain the subject of a lot of focus.  Overall, I'm cautiously optimistic, albeit my financial training requires me to point out that risks remain!

7. Tom Rogers, Senior economic adviser to the EY Eurozone Forecast

Tom Rogers In order to drive a stronger recovery, which more quickly provides job opportunities for the Eurozone's 18 million or so unemployed, governments must do a better job of making their economies more dynamic and competitive.

Efforts at policy co-ordination in recent years have understandably focused on tackling the existential risks facing the Eurozone, but measures such as the European Financial Stability Facility and European Stability Mechanism, or the European Central Bank's bond purchase programme, cannot reduce the cost of job creation in countries such as France and Italy. Youth unemployment in both of these countries was double the rate of that in Netherlands or Germany going into the crisis (around 20 per cent versus 10 per cent).

Governments must do a better job of making their economies more dynamic and competitive.

A failure to improve competitiveness and tackle the barriers to job creation is one reason why some countries have endured a debt crisis and emergency austerity, and others have not, and why prospects look brighter in some countries than others. If governments cannot sustain the sense of urgency applied to tackling deflation, or agreeing a new deal for Greece, into dealing with structural barriers to growth that still exist in some key economies, then the Eurozone will remain vulnerable to crises in the future.

8. Lynn Fordham CA, Chief executive officer, SVG Capital

Lynn Ford CA The unprecedented monetary policy response to the global financial crisis prevented a catastrophic collapse of the global financial system but has failed to kick-start meaningful growth and prevent chronic youth unemployment in the peripheries of Europe. Structural reforms should improve the position in the longer term but have been slow to adopt and will take time to produce results. 

Growth should be the Holy Grail at the moment. 

In the meantime, the focus on government deleveraging has meant that stimulatory spending on much needed infrastructure has been avoided – the Juncker plan (the €315bn Investment Plan for Europe, designed to stimulate the EU's post-crisis economy) is insufficient.

This is a mistake. Government borrowing does need to be reduced but not all borrowing should be treated equally – governments should be prepared to treat infrastructure investment as a special case. 

Growth should be the Holy Grail at the moment. It seems short-sighted that governments are unwilling to utilise their ultra-cheap borrowing capacity to finance infrastructure investment projects that should boost employment and tax receipts (and reduce welfare spending), as well as providing improved long-term productive capacity for the economy.

Current expenditure should be covered by tax receipts, but "sensible" long-term investment can be financed by debt, particularly if it is available at historically low rates of interest.

9. Mark Hammond CA, Deputy managing director, Caird Capital

Mark Hammond CA It has been clear for several years that the imbalances in the economies of the Eurozone are the biggest threat to sustainable growth, not only to Eurozone countries but also to those who trade with them, including the UK. We are only partially insulated from this by having remained outside the Euro. Only when that issue is permanently addressed will stability return and sustainable growth be possible. 

The imbalances in the economies of the Eurozone are the biggest threat to sustainable growth.

Eurozone countries have spent the last few years kicking the can further down the road and recent events don't provide much confidence of a political will to reach a long-term solution.

10. Amanda Mcmillan CA, Chief executive AGS Airports Ltd

Amanda Mcmillan CA Air travel plays a hugely important role in facilitating economic growth, whether it's boosting tourism, encouraging exports or attracting inward investment. It's often said that commerce follows connectivity and the quality and reliability of transport infrastructure will always be significant considerations for businesses when making investment decisions. 

A report by airport trade body ACI Europe found that for every 10 per cent increase in air connectivity in a country, the GDP per person will increase by an additional 0.5 per cent. So there is a clear correlation between improved air connectivity and economic output.

Airports are good barometers of how the wider economy is faring.

Our efforts in attracting the routes that will support further economic growth will be aided by the welcome announcement that Air Passenger Duty is to be cut by 50 per cent when it is devolved to Scotland. It is vital that this policy move is progressed as soon as possible to ensure our tourism industry can continue to flourish and Scotland's economy can thrive.

From a UK perspective, we welcomed the findings of the Airports Commission, which unanimously backed a third runway at Heathrow. We will always seek to secure direct links with airports throughout Europe and beyond but there is no escaping the fact that long-haul connectivity in the UK is dominated by Heathrow. The UK Government must swiftly and implement the findings of the Airports Commission.

Airports are good barometers of how the wider economy is faring. Glasgow Airport was one of the fastest growing airports in Europe during the first six months of 2015 and business travel has been steadily increasing, so I am cautiously optimistic that we are seeing positive indicators.

Read the full version of this article in the September 2015 edition of The CA magazine.

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