THE past month has been a strange one for any economy and, as has been discussed during the past fortnight, business is increasingly looking to government for support.
The Economic Summit which took place in Cardiff nine days ago has highlighted the main ways in which the Assembly Government can begin to support the business sector in Wales.
However, it still remains unclear as to how deep a recession we will actually experience here and whether the industrial structure of the Welsh economy will help or hinder any recovery.
Politicians point to the fact that the number of employees in the Welsh economy has grown by more than 114,000 since the Assembly was created in 1999. Unfortunately, at least for this particular recession, that job growth has been in those sectors which are most likely to be hit hardest by the economic slowdown.
For example, data from the Office for National Statistics showed that new orders in the construction sector declined by 15% during June to August, compared with the previous quarter, and that the value of new construction projects had fallen by 19.7% in the past year, with residential projects down more than a quarter. In this respect, the problem for Wales is that employment in the construction sector has grown by 18% in the past nine years and any slowdown is bound to hit the job prospects in this sector hard.
Similarly, with retail sales slowing down and trade in the restaurant and pub industry contracting, employment in these sectors is under threat. In Wales, nearly 30,000 more people are employed in retail trades than in 1999 and it is likely that the pressure on real take-home pay, a decline in credit availability and increased bills will result in a continuing slowdown in demand.
The sector which has shown the largest percentage growth in employment during the period 1999-2006 is financial and business services, with 42,700 more people employed in this industry, an increase of 34.2%. While companies such as Admiral are buoyant about their future prospects, it is clear that, again, this sector is going to come under increasing pressure during the next few months as demand for financial products will all but dry up and consequently some of the larger investments into the loans and mortgages sector in Wales may disappear.
Of course, manufacturing still employs 20% of the Welsh workforce and, given the export opportunities that will arise from the weakness of sterling, could be a key sector for our economy over the coming months.
However, such statistics hide the fact that manufacturing employment has declined by 24% in 1999, with the loss of nearly 50,000 employees. The question is whether the companies left in Wales will be fully supported in exporting their goods and, as a result, will buck the trend in terms of employment decline during the recession.
Of course, the optimists are arguing that the size of the public sector in Wales will be an advantage as the private sector economy slows down and that there will be a greater reluctance by government to cut jobs.
Certainly, the public sector remains the largest sector in Wales, employing more than 32% of the workforce. It has also shown the largest growth in numbers, with 67,500 additional employees working in the public sector since 1999.
While there are signs that the UK Government is ready to spend more of its resources on capital projects to help the construction industry, this may not actually help any jobs in the public sector itself.
Indeed, in order to balance the books, the Treasury may well demand efficiency savings across the board and Wales, despite having a devolved administration, will be as vulnerable as any other region to cuts in the UK’s fiscal budget.
Also, with a lower financial settlement than last year, local councils will be faced with the prospect of either hiking their council tax next April or cutting jobs to save money.
While I am always an optimist of the Welsh economy, I believe it is going to be a difficult 12 months, and unemployment in Wales will rise considerably as a result of the economic slowdown. It may even breach the 100,000 barrier during the first few months of 2009.
Ironically, it is our success in attracting jobs in the services sector that will have the greatest impact on our ability to emerge quickly from recession and I will be watching the construction, retail and financial services sectors very closely over the next few months as their resilience will largely determine the future of the Welsh economy.