Supermarkets may be in line for a shock if demand slides

Morrisons turned in another robust set of figures amid what the supermarket group calls the heaviest pressures on consumers since the early 1980s recession, but pressures are mounting on a sector that has enjoyed substantial growth. Group chief executive Dalton Philips and finance director Richard Pennycook, presenting the figures yesterday, made no attempt to hide the significant challenges facing the food retailing industry in these straitened times.

The company points out the irony that, during the 2008-9 recession, consumers’ disposable income actually rose because higher taxes had not yet kicked in. That chimes with the somewhat guilty secret of the last recession: if you had dodged the P45 bullet you were actually not doing badly, what with historically low interest rates slashing your monthly mortgage and a flood of special offers on the high street throwing up must-buy bargains.

Today, by contrast, Morrisons points out that, although we are technically out of recession, consumers have suffered sizeable reductions in their disposable income.

In short, we suffered a recession that didn’t feel like one to many of those still in work, and now we are in a “recovery” that also doesn’t feel like one. Things look chronic in every sense.

This is bound to impact the big four supermarkets. Morrisons, Asda, Tesco and Sainsbury’s have all invested heavily in expanding their floorspace in recent years.

Hundreds of millions of pounds have been invested by the industry on this physical estate expansion, but the received wisdom now is that the extreme pressures on shoppers mean food retailing capacity growth is likely to outrun demand growth for at least another 18 months to two years. And that’s the optimistic timeframe.

This disconnect is bound to keep supermarkets’ same‑floorspace sales relatively depressed compared to historic growth for quite a while to come. That is bound to limit returns on their investment. Even the resilient food retailing industry, therefore, will begin to feel the pinch.

Lack of political will? Just ask the Belgians if it works

THE respected Paris‑based economic think tank, the Organisation for Economic Co-operation and Development (OECD), says the world’s powerhouse economies look stagnant.

From the United States to Germany, it says the outlook for the final quarter of 2011 is bleak, with sharply reduced growth forecasts.

The rapidity with which the macro-economic recovery has lost steam since early summer is startling. Growth across the G7 nations, estimated by the OECD at 1.6 per cent from July to September, could fall to just 0.2 per cent between next month and December, it says.

The response, therefore, looks increasingly like a case of how soon, not if, the monetary authorities usher in more quantitative easing to stimulate flagging economies.

As an aside, it is interesting to note that, while the UK’s latest quarterly economic growth was 0.2 per cent, Germany’s a wheezing 0.1 per cent, and US growth just 0.3 per cent, little old Belgium registered growth of 0.7 per cent.

Interesting because Belgium has not had a government for the past 15 months due to political gridlock. Simplistic, maybe, but no government equals no austerity package equals an economy puttering along at a decent pace through the storms.

A lot has justifiably been said about a lack of political will contributing to the current financial malaise on both sides of the Atlantic.

But Belgium shows there can be another side to the coin, where politicians have been taken out of the equation without much economic detriment. It shows that the economic train can run without signals from a country’s body politic.