City's green shoots?
IS THE nightmare over? Well, our streets are not thronged with starving people, and so it's safe to say this is not 1933. Little comfort if you've lost your job. And no doubt there are more redundancies to come. But there are also welcome signs of renewal.
A rash of recent stories has had the optimists claiming that the recession is over. Estate agents are reporting growing activity in the property market. House prices are up two months in a row in the capital. The Halifax says that property prices rose 2.6 per cent last month UK-wide, and mortgage approvals were up in April.
And after a terrible first quarter, when official statistics showed the UK economy shrinking by 1.9 per cent, there are some indications that growth has returned. The National Institute of Economic and Social Research last week detected 0.2 per cent growth in April and 0.1 per cent in May.
So could Britain be the first big economy to escape the clutches of the credit crunch? Unlike previous recessions, the business sector was in good shape when the storm broke, with steady productivity and growth, flexible labour markets, and low inflation and interest rates. It is our financial systems which imploded. The biggest enemy has been the collapse of confidence.
Of course, this is not much comfort for Edinburgh, where financial services are so important. No-one doubts HBOS and RBS have felt the pinch. Others have drawn in their horns in a cautious reaction. It's difficult to imagine that we are out of the woods already. So how does the picture fit locally with these national signs of optimism?
Certainly, some senior Scottish economists such as Jeremy Peat and Donald MacRae have been much gloomier about prospects north of the Border. The city economy has been hit hard. Property prices are down 15 per cent and planning applications for new developments have halved over the last twelve months. Meanwhile, the ONS figures show construction is firmly battened down.
Unemployment in Edinburgh has doubled from 1.5 per cent to 3 per cent. Do we face the depressing prospect of Scotland lagging behind the rest of the UK once again?
I'm not so sure. My belief is that there are grounds for optimism, especially in Edinburgh. Official data that relates to Scotland is often published much later than for the UK as a whole. Just as this gave some false hope that we were avoiding the worst last year, so it may take longer for the recovery to be detected.
There is one important sector that is clearly buoyant already. It looks like 2009 will be a bumper year for tourism. A recent report by Travelodge indicated a substantial 4 per cent increase in tourist visitors to Edinburgh year on year. That equates to 400 million of new business.
Individual tourist attractions have also seen growing visitor numbers. Edinburgh Castle reported ten per cent growth in May compared to a year ago. Much of this may be a result of UK holidaymakers feeling the pinch and deciding to play at home this year, a trend helped by the weakness of the pound. But some of the upturn is Edinburgh specific. Travelmole, the tourism industry web site, says that Edinburgh hotel occupancy, up six per cent, is bucking the UK trend (down 11 per cent). What this shows is that we have particular strengths locally that can be built upon. We're not just floating along in the broader current.
Tourism fits into a wider impression of resilient consumer and business activity. In April, Edinburgh Airport was the only one in the UK to show a return to net growth in traffic (1.4 per cent). When I walk down George Street I don't get the sense that this is a city suffering from economic depression. Yes, even George Street has 4 per cent vacant floor space, but that's nothing like the doom and gloom you would (anecdotally) think we were facing. The streets are busy, the shops and bars are lively, there's plenty of chatter in international voices.
While there are grounds for optimism in Edinburgh, however, we cannot be complacent. Even if we have turned a corner, some of the worst effects of the downturn are still to come. The nature of recessions is that their impact is felt in different ways at different times. Unemployment in particular tends to follow some way behind the initial indicators of the downturn as companies shed jobs in an effort to cut costs and improve productivity. And some businesses will continue to close altogether as they are finally defeated by the drop in demand months after the downturn began.
In practice, there are three phases to the recession. Phase One is where headline growth figures take a dive, but the full impact in terms of job losses is yet to be felt. We are now in Phase Two, where the recession may be technically ending, but bad news continues. Phase Three, yet to come, is a resumption of growth, but high unemployment, high public debt and possibly higher taxation may be consequential damage.
It's vitally important, therefore, that government and business organisations such as the Chambers of Commerce continue to help businesses in the real economy. Edinburgh Chamber is certainly playing its part with our One Step Ahead programme to help businesses beat the recession. To give just one example, we have set up Edinburgh Chamber Business Exchange, which is a free bartering service that has the potential to improve cash flow and reduce costs. It has already attracted two hundred users in the city.
Recessions are a disaster for some and worrying for all. There is some hope that we can now look for an early upturn from this one. But its ill effects will be felt for some time to come. The good news is that recessions also present opportunities for those who pull through them. Our task is to ensure that Edinburgh's businesses survive in good shape so that the city can emerge stronger in the years to come.