Marius Cloete: The end [of the recession] is nigh

Marius Cloete, Evening Standard insight manager, explains how Londoners could be leading the way out of the recession.

Not very long ago we were staring into an economic abyss. The hot topic for both the financial world and dinner table banter revolved around whether the recession would tip into the first depression in more than 80 years. And even if you weren’t able to speak about it with any degree of authority you were, probably, very worried about what was happening around you none the less.

Then miraculously those “green shoots” starting appearing. The first few brave souls who used this phrase were mocked by their peers as little as six months ago but these days the term is used with a lot more confidence, and rightly so as there is enough evidence to back it up.

Leading indicators such as the production index, GDP, consumer confidence, the stock markets and even house prices all point to the fact that we’ve seen the worst of the recession. And with the economies of Germany and France recently returning to growth, the financial markets seem more interested in discussing what the recovery will look like rather than when the recession will end. So on the face of it we have a lot to be optimistic about.

But is this a sentiment shared by the average consumer? In developed western economies, consumer spending can account for up to 70% of GDP, so needless to say, without a shift in consumer sentiment any recovery could be rather tepid and painful.

Research by NVision would suggest that the average Briton is not quite ready to pop the cork and celebrate our pending return to economic growth, quite the opposite in fact. Consumers seem to be even more fearful of what the future holds for them than a year ago.

And this fear is largely driven by job security, or rather, insecurity. During autumn 2008 19% of the population was worried that they may loose their jobs, by spring this year that figure had risen to 27%.

Employment is of course a lagging indicator, so yes, unemployment is likely to rise even after the recession has ended and with unemployment projected to peak somewhere around the 10% level, it means that another 2.2% of the working population may loose their jobs.

Add to this the fact that 63% of the population believe that the economy will get worse during the next 12 months, and a potentially grim picture emerges for consumer spending leaving us to ponder whether austerity will replace consumerism as the new normal.

There are, however, some indications that consumerism isn’t completely dead and could be building some momentum in London according to London Voice, the Evening Standard’s London Panel.

London Voice shows that unlike their national counterparts, Londoners are now less concerned that their jobs may be at jeopardy compared to last autumn. A driving force behind this difference in attitude could be attributable to the fact that London has actually seen the lowest increase in unemployment compared to other regions. Between March – May 2007 and March – May 2009, the number of unemployed in London increased by 20%, significantly lower than the worst affected regions such as the South West (+64%), East Anglia (+59%) or the West Midlands (+54%).

Coupled with a lower level of concern about job security, Londoners also appear to be more optimistic in general. They are less likely to agree that the economy will get worse over the next twelve months than their national counterparts and compared to last autumn the proportion worried that the current economic climate will threaten their financial security has decreased from 35% to 25%.

As a result, Londoners now seem more willing to resume a more normal (and I use the term loosely) pattern of spending. A third of those who cut back their spending in recent months admit that they are no longer sticking to their cutbacks. When asked why, more than half stated it’s because they simply refuse to live in fear any longer. Even those who are still keeping to their spending cutbacks admit they are thinking about spending more on things such as entertainment, shopping and travel in coming months.

This of course does provide a window of opportunity for marketers to target a small geographic area with a large population who are showing more willingness to spend than is the case in the rest of the country.

These consumers may not be spending like they used to, but they have certainly started thinking about it, which does provide the ideal opportunity for marketers to start influencing their thinking.

More importantly one would hope that Londoners are giving us a taste of how the rest of the country could start behaving once the economy starts to recover, and worries about job security start to dissipate.

Do you agree with Marius? Send us your opinion – news@mediatel.co.uk