Contrary to what doomsayers tell us, good business practices can mean that companies flourish in unstable business environments. Well-run oil majors, defence companies, tech firms, eco-car manufacturers, investment houses (not just those betting on shorts), have all extracted healthy profits, or sustainable capacity expansion from the back of ailing sectors and wounded terrains.
But, 2019 has already thrown up some difficult headlines for business communities. That’s without considering Brexit. Goldman Sachs’ CEO has issued an apology for the so-called 1MDB scandal, which saw billions of dollars embezzled from the Malaysia State Development Fund.
Closer to home, iconic retailer Marks & Spencer have announced the closure of 17 UK stores. Japanese firm Hitachi has frozen work at a UK nuclear plant and Parliament is still yet to decide on approving Sainsbury’s merger with Asda. If approved, we will see another historic British retailer, ultimately, reporting to US mega-retailer Walmart and American regulators.
The Guardian newspaper, fond of the EU, blamed “UK political turmoil” for taking “its toll” on sluggish Christmas retail figures at John Lewis, Halfords and Sainsbury’s. John Lewis’ fashion and homewares division reported drops of 5-7% in sales.
Yet Tesco and Next – both considered economic ‘bellweathers’ – increased sales. The telling data here shows that online sales grew by 15% at Next but fell almost 10% in its shops. In fact, according to the UK Office for National Statistics, year-on-year online sales have grown by 13.9%, and up to 17.8%, when we consider new innovative seasonal promotions such as Black Friday.
Yesterday, the head of the UK CBI, which has been deeply pessimistic about Brexit, told the BBC that: “I don’t think there will be a single business this morning who is stopping or halting their no-deal planning.”
But, Tom Bohills at the Alliance of British Entrepreneurs’, and other pro-Brexit business leaders (including Wetherspoons’ Chair, Tim Martin), explain that the continued reference to “No Deal” by UK politicians and media is, actually, a misnomer: “We would simply default to WTO (World Trade Organisation) trade rules,” explains Bohills, “which are designed precisely to deal” with uncertain conditions including international disagreements.
The IMF certainly views a “no deal” Brexit as one of the potential triggers behind slower growth during 2019 (at least) in its World Economic Outlook Update, January 2019. But, according to the IMF, the big-ticket stress items for the global economy omit Brexit and include, principally:
-Tariff issues between the US and China – the 90 days hold-off from tariff proposals agreed on December 1stwas welcomed, but the new deadline for a positive deal is looming
-Germany’s new automobile and fuel emissions standards
-High levels of public and private debt
-Larger contractions than expected in key, large emerging markets (Turkey cited).
The IMF’s summary, ‘softening momentum, high uncertainty’ is apt. Oxford Economics research institute reported today that global growth could almost freeze over the next couple of years due to a significant (now likely) combined slow-down in China and America.
We can feel it here in London – the “most coveted place in the world to live” (according to Boston Consulting Group) – where consumer demand has dropped in key sectors and property sales are sluggish, indeed tumbling in some zones.
But, as we at GBS open new campuses in Birmingham (2018) and Manchester (September 2019), our prediction is that the so-called ‘second-tier cities’, with their lower cost base and improving transport infrastructure, will still experience forward momentum, after what is going to be – for sure – an uncertain opening to 2019 for everybody.
Happy New Year.
Managing Director, GBS