Germany's there. Denmark got there first, followed by Ireland. France, Italy, Spain and much of the rest of the eurozone will quickly follow. So will Japan, the United States and the United Kingdom, including Scotland.
Germany's there.
Denmark got there first, followed by Ireland. France, Italy, Spain and much of the rest of the eurozone will quickly follow. So will Japan, the United States and the United Kingdom, including Scotland. This year and next a broad swathe of the developed world is going to taste economic recession. And for many people the most bitter part of that experience will be losing their job. We are already seeing something we haven't seen for many a year: a daily toll of companies announcing big reductions in payrolls as times get tougher.
Yesterday it was BT's turn, cutting 10,000 jobs by next spring, the majority contract staff. In Germany, mighty Siemens announced it is cutting even more. There will be many more such announcements before these turbulent times blow themselves out. No-one knows how many. No-one knows how many jobs will go. All we have are forecasts and projections. And some of them are very scary. For instance, the Fraser of Allander Institute here in Scotland has just painted four scenarios through until 2012. The bleakest sees 120,000 jobs going here by the end of 2010, a virtual doubling in Scotland's ILO unemployment count as it stands today.
These are, I stress, forecasts and projections. They are not predictions. No-one, as Bank of England governor Mervyn King kept repeating the other day, has 20-20 foresight. Like the rest of us, King and his colleagues were caught short by the sheer scale of the global banking crisis and the credit squeeze it has produced. The Bank's monetary policy committee was fixated on its inflation remit, wrestling with the consequences of oil, food and commodity prices soaring into the stratosphere, leaving their own inflation target a semi-detached dream. Now they are watching the prices of these same global staples dropping like stones.
Who would have bet that oil, so recently peaking at $147, would now be heading below $50 a barrel? As a result, some measures of inflation in the UK may even go negative next year, heralding a period of falling prices or deflation. If that happens, some hard-pressed employers may even insist their workforces take pay cuts as an alternative to job cuts. But that's a tomorrow story. For now, we can be sure jobs will go. Of that there is no doubt. However, none of the estimates of the scale of the losses now being tossed around is carved in stone.
Welcome to the fog of global recession. There are huge imponderables out there. For instance, what will happen to the American automobile industry? GM, the biggest of the three remaining US car giants, is running out of cash fast. Its fate promises to be one of the earliest challenges to the Obama presidency. Should it get a federal bailout on the kind of scale given to American banks and mortgage institutions? Or should it, like Lehman Brothers in September, be allowed to go under, seeking protection from its creditors in another massive Chapter 11 insolvency?
Up to one million jobs could depend on the outcome. Henry Paulson, in the endgame of his time as Treasury Secretary, is now feverishly restructuring his hard-won $700bn banking bailout to reduce the buy-in of toxic assets in the system and put more federal support behind markets which securitise credit card debt, auto finance and student loans. The objective is clear enough: to bolster fearful American consumers. But the impact is to sow fresh doubts about whether even the world's biggest economy, at this time of political transition, knows how to get itself back on an even keel.
The United States still has a significant domestic manufacturing base to defend. Much of ours was surrendered in earlier downturns. In 1974/75 and again in 1980/81, UK manufacturing was in the eye of the economic storm. Inefficient, under-invested segments of British industry were cruelly exposed to superior foreign competition. Whole sectors were wiped out. Traditional skills were lost. Even in the early 1990s recession, which Scotland just managed to resist, one of our last post-war industrial totems, the Ravenscraig steel strip mill, succumbed. So, in some significant respects, this recession in the UK, and in Scotland, is going to have a very different feel from those that went before.
It is already hurting housing and the wider construction sector hard, as other downturns have done in the past. But this time other parts of our economy, which have rarely felt such pain before, are also right in the firing line. As we have come to make less and less, service industries now dominate our economic landscape. This output crunch will hit jobs in all of them. Financial and business services. Communications. Tourism. Retail. However, one sector which could emerge relatively unscathed is what remains of UK manufacturing.
I spent an evening this week with some leading members of Scotland's engineering community. We went round the table to find out how they were faring in what Mervyn King calls "these exceptional and difficult times". The responses were remarkably mixed. One of the smaller companies present had just had its best monthly order intake in the past two years. Another, a sub- contractor, was seeing inquiries falling off a cliff. A bigger business, making devices that go into everyone's home, reported business was buoyant despite the housing crash. Another was battening down the hatches as a precaution for tougher times ahead. Yet another is still finding it difficult to locate the skills it needs.
Companies that have survived in engineering, like the rest of what's left of Scottish manufacturing, know what recession feels like. And they learned plenty of lessons. They are leaner, fitter and much more innovative as a result. That helps explain why the mood round that table was not all gloom and doom. But the service sectors that are now confronting these same pressures, perhaps for the first time, are on a very steep learning curve. And that's before we factor in the sheer scale of the uncertainties we all now face. Who knows how they might respond?
But here's one perspective that's been absent from all the recession talk so far. We know Scotland is now a services-dominated economy. Services account for nearly 74% of our national output on the latest government weightings. Manufacturing just 14%. Yet within that dominant share, financial services account for just 8.3%. And just over half of that, 4.3%, is down to banking. It may surprise you to know that engineering's equivalent share, even today after all it's been through, is 4.2%. If some of those billions that are now being thrown at banks had been thrown at manufacturing in recessions past, might we all have been in a more reassuring place today?
