Economy slumps six per cent
Thursday 30th September 2010, 3:00PM BST.
Treasury Minister Philip Ozouf
LAST year saw Jersey’s worst economic slump in modern times.
The Island’s economy shrank by six per cent as the effects of the global downturn really hit home.
And the value of the finance sector to the economy tumbled by 12 per cent during 2009 when compared with 2008. In terms of gross value, the economy was worth £3.725 billion in 2008 and £3.621 billion in 2009.
The figurers were no surprise to Treasury Minister Philip Ozouf. He said that the Fiscal Policy Panel had predicted a five per cent reduction in the value of the Jersey economy.
• Read the full report in Thursday’s Jersey Evening Post
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Maybe it’s time politicians stopped talking about economic diversification and started getting on with it? Considering a 0.5% or even a 0.25% change in economic forecasting is big news in the UK, I’m somewhat shocked at the Blasé attitude towards the reality of a 6% reduction in economic output from the predicted 5% shrink. Sorry to be scrupulous, but a difference of 1% is quite significant. Moan over.
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Well our chief minister was correct then when he said Jersey was not in a recession last year. Closer to a depression.
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Did not prevent some fat cats becoming fatter. Two contrasting examples:
Durrell Wildlife’s CEO took 21% more home during the recession (published annual reports by Durrell – freely available on their own site: annual salary: 2008 £90-100,000 band, 2009: £110 – 120,000 band). Never mind the staff that was made redundant.
Compare that with the much more reasonable salary of the CEO of Jersey Hospice Care: annual salary: 2008 £60-70,000 band, 2009: £80 – 80,000 band.
And who is whinging? I know who I continue to support.
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And the unions are furious because Ozouf wants to find a further £15m savings. This is why people vote Ozouf/ Le Sueur in to office. They may not always be right but they do what they do for the good of the island and not for the good of individuals with no forethought to the rest of us.
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Don’t forget Dep Tracy Vallois said we were not in recession either. Good to see the young States Members have their finger on the pulse….
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If this were party politics we would throw out the party who caused it, but what does jersey do, vote the crowd whose caused this back in. His Zero taxation left a £100m black hole, and he got £100m in the last five years of unexpected taxes but he just spent them. The guy is incompetent and it’s time he went. Register to vote, it will make a difference and get him and the thatcherites out.
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@2 Tom Jones
It ain’t unusual………
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54 political crew onboard the good ship Jersey!!
and we are rudderless!! A sad reflection on a very ineffective government.Sadly more pain is likely to follow.
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those idiots would’t be able to count the change in their pockets, let alone look after millions,as they are proving day by day,
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Ooops seems it’s not a case of “happy days ma lav” any more. Still, not sure even this news will stop the immigrant bashing, or the residential apartheid system in its tracks, when Cameron comes looking for the tax avoidance coffers Jersey will be revealed for exactly what it is.
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Rudolph Hooker # 7 and Tom Jones # 2. “What’s new pussycat?”
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1 – Of course you are right ! But then Ozouf is the father of all spindoctors. The danger for all of us is that he believes it all himself.
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Spot on Cathy @ # 4
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The fact of the matter is the Bank of England base rate – which our fortunes are tied to – isn’t all that good. Once that turns a corner we may find that we are not doing quite so bad.
Let’s keep it in perspective.
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I think you will find that Deputy Vallois was misquoted by Channel TV and it was her proposition supported by scrutiny that was taken to the states to increase cuts which was only narrowly defeated
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Immigratn – you clearly have no diea about British politics. David Camerons political supporters no doubt use Jersey as a finance sector.
The Tories won’t touch us.
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Perspicous 14,Any economy that relies on the Bank of England base rate to cure its ills is an economy run by fools and built by even bigger fools.Have you asked yourself what will happen if the base rate stays sub 1% for the next ten years as has happened in Japan.What happened to the high tec light industry ? what has happened to tourism agriculture etc etc,the one trick pony that is Finance has to keep performing or the outlook for our children and grandchildren is very bleak.
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“Immigratn – you clearly have no diea about British politics. David Camerons political supporters no doubt use Jersey as a finance sector.
The Tories won’t touch us.”
Obviously you were not around in the early eighties when the Conservative government changed the law relating to the tax treatment of roll up gilt funds and pulled the rug out from under quite a bit of Jersey fund management in one budget.
Cameron and Co need money and the top tax wranglers at the Treasury are certainly in over drive working out how to get it for them.
Besides bashing a few offshore finance centres would go down well with the voters and the Coalition’s honeymoon with the voters is already over.
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“The fact of the matter is the Bank of England base rate – which our fortunes are tied to – isn’t all that good. Once that turns a corner we may find that we are not doing quite so bad.
Let’s keep it in perspective.”
Low interest rates are here for years to come as governments try to lever the world economy out of the pit it has fallen in to.
Actually interest rates of 2 -3% or less are the norm historically so it might be an idea to try and adjust to them, they could be with us for decades.
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Errr no Truthseeker. That is the problem. There are far better places for Tory supporters to deposit money. Jersey’s largest industry – finance – is losing ground because other off shore locations offer better services and fund performance with less regulation. At least two fund managemnent companies owned buy non European large banking firms have plans to exit Jersey shortly – the reason is that Jersey is no longer the ideal location that it once was. The greedy more for me attidude of Jersey’s top earnering establishment has created an unhealthy culture.
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Real Truthseeker (16) The Tories won’t touch us.
Re Philip Ozouf. et al. They be blind leaders of the blind. And if the blind lead the blind, both shall fall into the ditch.
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Whilst Jersey’s economy has shrunk by 6 per cent in the last year the UK’s by comparison has grown by 0.75 per cent; Jersey has problem.
The JEP reports that both funds under management and bank deposits have reduced over the past three years whilst unemployment is currently at record levels. For some time corporate employers in Jersey have been recruiting less people than at any time in the recent past.
Things can only get worse unless an attitude of change is embraced. Small is good big is bad for job growth.
In the UK during the past 10 years more jobs have been created by small or medium sized businesses (SMEs) than large ones. More people in the private sector in the UK are now employed in SMEs than large businesses – despite regulatory and tax issues making it more difficult to do so.
Maybe the future of Jersey’s economic prosperity lies not in the once safe and secure corporate world but in the entrepreneurial world of smaller owner managed businesses.
The days of well paid, safe, controlled, tightly defined working environments around every corner are disappearing fast and the expectations of the working population of Jersey folk should change accordingly. Less not more employment law would help, as would a realistic understanding that Jersey has had it good for 20 years under the domination of the corporate culture, times are changing fast.
I suspect the culture change back to an Island that is not corporately controlled, where the work force is more focused on local work needs rather than office politicts, will be a slow process.
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Red Squirrel. Would you disagree that Japan has elected to keep its econoomy that way in order to compete? They have preferred to make the exchange rate work to their benefit and part of the solution has been to manipulate the base rate. The situation is a little different for the UK which prefers not to have a low base rate and a more favourable exchange rate.
Pip: I’m not sure that any of us can tell the future but we can keep our fears in moderation.
The global economy cannot grow or contract, it is finite and will adjust itself in due course.
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Well, few good points there (won’t name them all, as so many valid arguments raised) – I just don’t agree with them, and time will tell how the Tories treat Jersey, and where Jersey ends up in the scheme of things. Nevertheless, Jersey’s economy follows that of the UK, the improvements will be a delayed reaction from the mainland, just as the decline was. Perhaps 18months delay is about right, so not surprising. Jersey is fine, and will continue to be.
It is still the preferred fund admin sector of the UK, with Geneva being it for Europe. Guernsey is a close second. These won’t chnage overnight due to the establishment costs to get them going.
Time will tell, but I bet in 18 months time we will be in much better position, economy stronger, property prices increasing, mortgages readily available. Back to the good ol days I say!
I need another pay rise, as fuel for the boat is increasing.
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My views are based on reports in the Financial Times and what is happening in the markets.
Cameron, Clegg and Co are following highly deflationary policies, as are most other European countries.
Huge cuts in government spending against a situation of economic slump will result in low inflation or even deflation. Low interest rates which might support increased investment by private enterprise and maybe more consumer spending in the one of the few tools in the locker that they have to counteract this.
Another big round of quantitative easing is another possibility.
Look at the long term yields on government securities and you will soon realise that the big star fund managers are betting on low interest rates for a long time.
Those are facts, not fears.
This island is supposed to be chock full of financial wizards, maybe one of them would like to try and disprove my central thesis.
Low growth, inflation and interest rates for the next five to ten years.
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Perspicous 23,Japan has spent Ten years trying to inflate their economy,as you may know it is known as their “lost decade”, unlike our economy Japans economy is broadly based,if the figures in Jersey for the Third Quarter money on deposit falls it will set a trend of three consecutive quarters of decline! until the trend is reversed I will remain bearish on the Jersey economy.
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“The global economy cannot grow or contract, it is finite and will adjust itself in due course.”
This is possibly the most stupid statement I have ever read on these pages and shows absolutely zero knowledge about economics.
National economies and the global economy as a whole undergo periods of expansion and contraction. Not all national economies are affected equally but for instance the slump of the early thirties affected almost everywhere as raw materials, manufactures and services declined forcing all economies into decline.
The global slump of the thirties almost certainly resulted in the rise of extreme right wing politics, the second world war and more beside.
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Pip – your comments are spot on and perfectly valid and makes perfect sense. There is a push however from the ECB and IMF to increase interest rates here. You are right the market woudl say otherwise, however there are elements of inflation kicking off in certain areas (oil, some consumer items etc), and accordingly is enough to creat inflation which when offset against recuced incomes in the UK, the base rate is likely to undergo some upward pressure.
Appreciate all forecasts are guesswork, however the powers that be expect interest rates to be over 1% by mid-2011. Other cowboys are saying 0.25% and others 3.4%, however the majority ‘senseilbe’ forecasters usually get it spot on. That lot forecast between 1 and 1.5%.
Whilst I agree completely with your points, the only thing to be wary off however is the external powers influencing UK economic climate (something Japan didn’t have since it was an isloated problem there, rather than today’s global problem).
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What hope do we have, and what are we supposed to do if we are a finance industry and finance takes a heavy blow from recession, Rock and a hard place comes to mind.
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I think that most Western governments would welcome higher inflation.
You can view inflation as an increase in the value of assets or a decrease in the value of money or money related assets like non inflation linked gilts over time.
Currently people are paying off debts or saving if they can.
Two of the companies in my portfolio have returned capital either by an extraordinary dividend or an offer to buy their own shares.
The fact is that people and companies are not spending or investing and banks are struggling to lend.
But let us say we have interest rates of 1 -2%, I agree with you here RT we will not stick at 0.5% but I doubt we will get off the floor for years, and we allow inflation to spike up to 5 -7%.
It will mean that people will want to buy goods, that new conservatory or the energy saving insulation looks much like a better idea when your money in the bank is shrinking by the month under interest rates that are a lot less than inflation.
Even borrowing money looks good, my company takes out a loan in 2011 pounds and invests it, pays little interest and pay the lender back in 2016 pounds that are worth a fraction of the pounds it borrowed.
It is even better for government debt as they pay such a fine rate, a decade of average 3% interest rates and 5% inflation would be a tonic for the government finances as it would massively shrink debt as a proportion of UK GDP.
It would be a tonic for the young and enterprising but a hammer blow for the old and those living on fixed incomes if it went on for a few decades.
Even the returns from a pension pot of over £1M at retirement aged 60 would be turned into something that could not pay for cat food pie if you were lucky / unlucky to live to a hundred.
Do not trust governments, Labour, Conservative or the slippery lot in the States!
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Hey Pip, at last love to have people who discuss the issue!
It is all up in the open, but if we had inflaiton in the 5-7% range, that is well above BOE target of 3.5%, and accordingly we would see interest rates balloon to counter this.
Take Australia, whereby the Reserve Bank only undertook minor cuts, and are now increasing rates and are at about 3.75% as their tool to keep inflaiiton under control.
Governments are following their lead since they escaped so well from the GFC 9with the help of resources).
May main point is that interest rates will rise quickly with upward pressure from the Eurozone, and with inflationary pressues.
Personally I am having my fingers crossed for lower rates for the next few years to get the loans for investment properties paid off in New Zealand and here…. but not confident.
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Just heard on the B.B.C.Jersey news,that the Finance Industry lost 460 jobs in the first six months of this year,why is Senator Ozouf so hell bent on the Esplanade development,there will be no one left to work there?
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Pip,
I had better see if I can make more sense for you.
Someone else has managed to explain the zero sum for you better than I can:
But stimulating exports through devaluation or depreciation is a zero-sum game globally. If currency A depreciates against currency B, currency B necessarily appreciates against currency A. Country A’s gain in exports to Country B are an increase in imports for Country B. It is logically impossible for every currency in the world to depreciate! Yet depreciation is exactly the policy being pursued by countries such as Japan, South Korea and Taiwan, all of which have directly intervened in the currency markets to lower their exchange rates. And, in each case of course, other countries’ currencies have an equivalent appreciation against them.
It is all relative, even QE gets reconciled by proportional devaluation. Surely, for a country’s economy to grow it must do so in relation to others. It can grow by, say 5%, but if all other countries have grown by 5% what is the real growth of that economy?
If you buy-in to the zero-sum or do not, I argue that it is a factor that, if not absolute, has significant influence.
Maybe you could enlighten me as to what this commentator in The Independant is trying to describe when stating: “Last month, Japan intervened in the currency markets for the first time since 2004, in a signal it would not allow the yen to appreciate further and harm its still weak economy.” if they are, indeed, trying to appreciate their currency.
See: http://www.independent.co.uk/news/business/news/tension-mounts-as-china-and-us-trade-insults-over-currency-2094459.html
We may not agree whether or not it is possible to grow the size of the Global Economy but we probably do agree that it needs to operate more effectively.
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PJK:
These figures come out every six months and the 460 you mention is over 12 months, the last six months saw a dramatic decrease in the unemployment rate in the finance sector. It is still concerning but this year has seen 110, not 460.
Curiously, we are having what seems to be a mini building boom, or at least that is how the figures appear.
This is from gov.je :
The Labour Market report for June 2010 shows that:
• total employment was 56,200, essentially at the same level as a year earlier
• total employment has been flat since mid-2008, and at the highest level since at least the mid-1990’s
• the private sector saw a net decrease of -80 over the 12 months to June 2010 and the public sector recorded a net increase of +90
• of total employment 49,360 (88%) were in the private sector (including the
States Trading Committees) and 6,840 (12%) were in the public sector
• the largest decrease was recorded by the Finance sector, down -480 on an annual basis. This decrease was of predominantly full-time staff and was comprised of falls of -370 in the last six months of 2009 and of -110 in the first six months of 2010
• the largest increase was recorded by the Construction sector, up +240 on an
annual basis and predominantly of locally qualified staff. Total employment in this sector in June 2010 was at its highest level for at least fourteen years
• in the private sector overall, compared with June 2009, the number of locally qualified staff increased by +280, j-category employees increased by +40 and non-locally qualified staff decreased by -420
• registered unemployment stood at 1,110 in June 2010, more recently the number of people registered as unemployed increased to 1,290 in August 2010; the provisional measure of the internationally comparable ILO unemployment rate for Jersey in the summer of 2010 was 3.0%
• there were 2,700 single-person undertakings recorded in June 2010, some 210 more than a year earlier; increases were seen particularly in the services and Construction sectors
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460 in 6 months that nearly 17 a week from our main wealth provider,as I posted earlier I am no economist but in light of these numbers the third quarter money on deposit figures will make interesting reading.
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Red Squirrel,
It was a maximum of 370, not 460. I know it is still a big scary number nonetheless. The good news is that the rate of loss has declined by those figures.
This is what it said:
- the largest decrease was recorded by the Finance sector, down -480 on an annual basis. This decrease was of predominantly full-time staff and was comprised of falls of -370 in the last six months of 2009 and of -110 in the first six months of 2010
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Perspicous. its not the numbers that concern me, it is their continued downward trend.
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The Bank of England has more than the objective of controlling inflation when it comes to setting the interest rate. One of the other objectives is to encourage or at least not choke off economic growth.
There is some upward pressure on prices but the upward pressure on wages and salaries is almost nonexistent.
House price growth inflation, the number of sales and new starts are a tiny fraction of a few years ago.
So not much inflation there and interest rates up to 4% would be near miraculous.
Things are looking grim for the next few years in the UK and I would guess that there will be quite some pain in Jersey as well. We have only just started on the CoM’s planned round of cuts. A lot of jobs are going to go and I cannot see the private sector making new jobs fast enough to take them up.
So let’s say 2,000+ officially unemployed by Christmas 2012?
It won’t be that comfy in Jersey but Ireland and Greece are facing a financial tsunami. Spain and Portugal are mired in debt with the worst aspect of the Spanish crisis being the thousands of newly developed properties that will never be sold and will quietly go derelict.
Iceland needs a bail out package from somebody or the whole place could slump into a hell of economic collapse that would make the Weimar Republic look like a walk in the park.
The good days might be back for most of us by 2015 but plenty of the weak or unlucky will suffer horribly in the meantime!
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Red Squirrel:
It is an upward trend, the last six months saw 110 fewer finance jobs, the previous saw 370.
If the last six months had seen 370 fewer jobs compared to 110 in the previous that would be a downward trend.
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