Nexus Collections’ MD and keen economist, Nick Jones, takes a look at the future economy and how it may affect our industry.
Being part of a global industry is a challenge. For
companies across the events sector, it is not just local issues that
need to be contended with, it is also the macro economy. Consequently,
it is vital that we consider every possibility and where possible peer
into our crystal balls in an effort to consider what might happen over
the next 12 months.
I am aid I am not very optimistic for
the future of our economy for the next few years, or even the next 10
years, if I am honest. If you don’t have the stomach for bad news and
worrying figures, please look away now!
As I mentioned in a short piece for CN last year, the
austerity measures and bailouts we are seeing around the world will
weigh heavily on economic growth for years to come. Some will take
comfort in the fact that I don’t believe there will be a sharp decline
in economic output as central banks continue to pursue quantitative
easing, providing liquidity to banks, therefore stimulating growth.
And, there is no question central banks will continue easing, having learned the lessons
of ravishing deflation experienced during the great depression where liquidity was not injected.
However, this liquidity will only prop up economies and markets.
It will not resolve the underlying problems of over consumption and excessive debt we have incurred over the last 30 years.
Not very positive news, particularly given it is a global
phenomenon, impacting a whole host of countries, many of which are
heavily reliant on the events industry. It is all about demographics
and the failure of the great Keynesian experiment.
After the Second World War, there was a population explosion (the
baby boomers). Birth rates increased dramatically from 1945 to 1950
before going back into a steady decline until 1970. As the baby boomers
reached maturity and began making families consumption increased,
particularly during the 80s and 90s. This is no surprise as peak
individual consumption occurs when we are in our thirties and forties;
we buy homes, have children, buy household goods, provide education, go
on family holidays etc.
The booming eighties were, therefore, genuinely no surprise as they
simply reflected the growth in consumption and therefore the growth in
corporate earnings.
On the flip side, wherever countries slipped into mild recession
during the boom years described above, Keynesian policy was adopted,
which taught central governments to borrow and spend to make up for the
economic shortfall.
The party is now over. During the eighties and nineties both private
and public debt escalated to unsustainable levels. The baby boomers who
spent and borrowed like crazy 20 years ago are now 60 plus years old.
They are downsizing their homes, paying down debt, curtailing
consumption, contracting their outstanding credit and trying to save.
In fact, not only are the baby boomers consuming less, they are now
drawing pensions and placing a larger burden on global social services.
Clearly the above scenario is unsustainable, public expenditure is
going to increase while tax revenues are falling. This is just going to
exacerbate the global debt problem, so watch out for higher taxes in the
coming years. Businesses in the events industry will continue to see
changes in the way people organise events as they look to save money,
achieve more, and above all, achieve greater, demonstrable ROI for every
pound, dollar, yen or euro (if it still exists) spent on an event.
Not only will we be squeezed more when it comes to price, we will also
be asked to show genuine value. Of course this isn’t all bad news for
the industry as it will force greater professionalism and improve
working practices across the board. It will also eliminate the few
cowboys that still lurk in the shadows.
Challenges also remain with governments and their current positions,
many have huge sovereign debt issues, having bailed out the banks for
their reckless lending. Most are responding by cutting spending and
increasing taxes, an attitude that just compounds the economic problems
brought about by the natural ageing of the baby boomers. All of this is
highly deflationary, house prices will fall, and without government
intervention economies will naturally contract until the baby boomers
complete their lives in 2025, a very depressing thought.
Central governments are trying to create a vision of what appears to
be a smooth and soft landing for us by monetary easing but this is not a
solution. Monetary easing is just inflation, it is not real growth.
The real situation is that central banks are manufacturing inflation of
about nine per cent to combat the contraction in the economy of about
eight per cent due to the reduction in consumption.
This fools us (in the UK for example) into thinking we have growth in
GDP of one per cent. Don’t be fooled by government statistics reporting
inflation of four per cent or five per cent. These statistics have been
manipulated for years to cover up the real story. Anybody who buys food,
has a car or uses electricity or heating will know this. Real growth is
created by consumption, manufacturing, savings and investment. Real
growth is what is happening in China and other emerging Asian economies.
So what do I conclude? I think the eurozone will slip into recession
(if it hasn’t already by the time this is printed). If there is any
growth it will be anaemic and manufactured due to currency expansion,
not real consumption and manufacturing. In order to clear the system out
and start again we should allow reckless banks to fail, insolvent
nations to default to clear down the debt and start over again. However,
this would be very painful and something the EU will not allow as they
try to hold together an ideology created by unelected bureaucrats. No
doubt they will want the gravy train to continue as long as they can
hold it together before it finally fails.
I suggest younger people in particular look to the east for
opportunities and I suggest that businesses do the same. It is exactly
what we are doing at Nexus and a host of other event based companies
have also seen the benefits of these markets. We have supplied the
conference market in Europe for 17 years, but we opened Nexus Asia as of
February last year and next year I will personally be located in Hong
Kong developing our Asia business.
China is vibrant (as is India): sure it may also slowdown but this
will be a temporary state for the reasons set out above. China’s very
young population is coming of age, spending and have an appetite
comparable to Western lifestyles. The boom years for Asia are still
ahead and the event industry needs to react accordingly.
Any comments? Email conferencenews@mashmedia.net
