ANY local businessman who doesn’t take account of the dramas unfolding in the eco-nomies of the UK and around the world would be very foolish. But he would be equally foolish to take recent events too seriously.

You note that I say the UK and other economies because, as yet, there is no evidence of any of these problems having an impact in Jersey.

Of course even the most optimistic of commentators has to acknowledge that Jersey is bound to suffer if a large part of the rest of the world goes into recession. However, it would be a mistake for local businessmen to assume the worst and plan accordingly. That might sound a reasonable plan on the face of it, but we should never forget that we are not just victims of a possible recession. We can also contribute to it and make it all much worse than it needs to be.

The trouble is, it’s very difficult to decide on a measured response when everyone around you is panicking. You can almost hear the shutters coming down in St Helier and there’s talk about corners being cut, perhaps a little less training being done, smaller amounts spent on advertising, and generally slowing everything down. It’s obvious that if this becomes widespread, we will have talked ourselves into a bigger recession than perhaps outside factors justify.

It’s a natural reaction, of course, particularly when we are bombarded by bad news. Some news media appear to have given up trying to find a silver lining. Oil prices go up and it’s bad news. Oil prices come down and it’s still bad news (because it reflects a slowing economy). And when bad news is piled on bad news, it’s very difficult to maintain a sense of proportion.

But there is a lot of good news around (unless perhaps you’re a banking executive). It’s just hard to find.
Take Jersey, for example. Its major industry is under pressure because of events elsewhere, but there are very large parts of the finance sector which should be largely unaffected by any credit crunch or recession.  Indeed, the drama could actually produce business opportunities as the inevitable flight to quality takes place.

So far there is no sign of any growth in unemployment, house prices continue to escalate and banks continue to advertise 95% mortgages. It’s true that house prices are slowing down compared to the enormous increases in recent years; but that’s good news. Inflation has increased significantly, but that’s mainly due to temporary factors, such as the introduction of GST and the impact of world food and energy prices (which are already coming down). Only if we allow a wage-price spiral to develop will high inflation become a real, long-term problem.

Then, there is no cause for worrying that the current problems in the global economy will result in the States running out of money. The Island has no debts. A balanced budget is being maintained over a five-year period, even though we’re going to lose £100m because of zero-ten and huge sums have been ploughed into health, education and social services. Jersey is still one of the lowest-taxed jurisdictions in the world (despite the gripes of the GST protesters), and we have close to three-quarters of a billion pounds in reserve doing nothing (except earning interest).

Yet we all seem to be more concerned about what’s happening on the stock markets, whose participants are no more able to see the future than we are.

The markets are weak largely because much of the investment has been financed by borrowing, where there are now obvious problems. So it has very little to do with the true economic value of the companies listed on those markets, and shouldn’t be confused with the real world.

But it is having an enormous impact on confidence, which has already been badly dented by the collapse of some large financial institutions, which should really not have come as much of a surprise. Some experts were predicting problems with structured finance and securitisation many years ago and a few newspapers were talking about threats to banks like Northern Rock, more than a year before it collapsed. 
It’s just that nobody took much notice of bad news in the euphoria of rising markets and the even faster increases in salaries and bonuses.

Now nobody is taking much notice of the good news buried by the banking crisis and the collapse of this happy state of affairs.

So Jersey will suffer some pain, but there’s no reason to believe that it will be very deep or for very long. Even in the UK, which, unlike Jersey, has most of the negative factors required for a recession, experts are predicting it will only last a year or perhaps two.

As some of those recessionary pressures are absent in Jersey, there is no reason to believe we will suffer as much or for as long as the UK. That’s particularly so now that our economy is becoming at least slightly less reliant on the UK.

It might even be that by the time Jersey goes into a recession, the UK will be pulling out of it. It’s difficult to say and there is no more evidence of that then there is that Jersey will suffer a deep and long recession.

But in the absence of evidence to the contrary, people will rely on gut feeling and confidence (or the lack of it). So unless someone points out the silver lining, there’s a danger that we will overreact and  it will all be so much worse than it needs to be. Perhaps we’ll get a positive message from organisations like the Chamber of Commerce and the Institute of Directors. But then pigs might fly.

Then there’s another problem. A recent survey found that 81% of business people in the UK believe that bosses have little or no experience of how to deal with a downturn.

Let’s hope they learn pretty quickly. In the meantime, it would probably be better to err on the side of optimism, rather than the reverse.

Peter Body is editor of Business Brief magazine