Annual Conference 2012 – Economic Context

North East Economic Forum Annual Conference March 1st 2012 – Economic Context

Economic state of the region

The North East, like the rest of the UK, faces significant challenges related to the recent recession and continuing international economic difficulties. A double dip recession this year is widely predicted

Over  the  last  two  decades  we  have  witnessed  a  major  reshaping  of  the  North  East’s   economy. This transformation has been profound and rapid. There has been a decisive move away from reliance on traditional industries, towards a more diversified economy, requiring higher skill levels, investments in innovation and technological capacity, and sustained private investment. The region has world leading technical capabilities and industries in the development and demonstration of new technologies, products and processes, generating many of the innovations that will drive the UK and international green economy. The North East has one of the highest levels of exports in the country and is the only region with a balance of trade surplus.

The  economic  and  cultural  regeneration  and  transformation  of  the  North  East’s  cities   and towns, underpinned by a buoyant national economy, has been a major achievement over the past few decades. Together all these changes have improved the  resilience  of  the  North  East’s  economy,  attracting  new  investment  and  talent  that   has placed the region in a much stronger position for economic recovery now than in previous recessions. The public private partnerships we have in the region create the conditions for growth and are crucial in attracting and retaining investment.

Current economic challenges

However,   many   of   the   North   East’s   long-standing economic issues have been exacerbated by the impact of the recent recession and public sector austerity measures. The region has suffered from a historically high rate of unemployment, which has near doubled following the recession. The North East unemployment rate stands at 12%, the highest in the UK and well above the national rate of 8.4%

The region is relatively dependent upon public spending; around 25% of jobs are in the public sector. In 2012, the Institute for Fiscal Studies reported that overall cuts in local government spending are some of the largest in the North East. With relatively low levels of business stock and start ups, both at around 65% of national rates, increasing private sector employment and growth will be difficult in many places across the region.

Despite the recession, there has still been positive progress. Before the recession, Newcastle’s   economy   grew   strongly   with   employment �� growing   more   quickly   than   in �� any other major English city outside London. And there is evidence of market confidence and investment despite the economic slowdown including: commitment from Virgin Money to Newcastle as its operational headquarters; private sector investments totalling around £100million on the North Bank of the Tyne at Walker Riverside; major city centre retail extension completely pre-let; and new office take- ups across the city centre. The recent completion of the second Tyne Tunnel is addressing over capacity and congestion issues on major urban road networks, opening up major new development opportunities and new jobs.

Spatial concentrations of weak industrial structure, poor housing stock, low skills and poor connectivity mean that there remain acute place based regeneration challenges in many areas of the region – with some of the most significant regeneration challenges in the former coalfield areas and in localised areas of high deprivation within  the  region’s  main  conurbations.

The North East has made up ground over recent years in terms of skills supply. However, the region remains a relatively low skilled region with particular challenges around higher level skills. Despite the increase in unemployment during the recession, employers in some of our key sectors cite skill shortages as a constraint on growth.

The downturn has spread across a broad range of key sectors in the region. The North  East’s  industrial base, which includes a significant proportion of manufacturing industries, is particularly susceptible to changing export conditions and the downturn in global and domestic demand. The construction and development sector has been particularly badly hit across most of the region as a result of the high cost of loan finance, risk aversion, end-user demand uncertainty and reduced property prices. Retail and service sectors will also continue to suffer in many places from reduced consumer spending over the coming months. Consequently, the North East is witnessing an increasing number of redundancies and rising unemployment as businesses struggle to operate in current market conditions.

However, this short term picture is contrasted with significant medium to long term opportunities for growth in key sectors such as renewable energies, healthcare technologies and digital and creative industries.

Global China UK trade relations

Export values from the NE to China pretty much doubled from £190m in 2007 to £379m in the 12 months to the end of September 2011 (latest figures available). UK exports more than doubled over that same period from £3.78bn to £8.23bn. Over the last 12 months NE exports to China represented around 4.6% of the total UK value, which is more or less exactly a reflection of the region’s share of overall UK export values worldwide. But the figures show obvious regional strengths in Chemicals and Related Products where the NE region accounts for some 14% of UK export values to China.

The growth in NE export values over the past few years has seen China enter and become pretty firmly established in the region’s top 10 export markets by value. To put that into some perspective, the region exported £2.2bn to its number one market by value, the USA, during the last 12 months for which figures are available. The growth in values of exports to the USA over the previous 12 months was some £447m, a larger figure than the entire value of regional exports to China. But China is obviously an important market in terms of potential over the next few years and as a market where economic growth rates remain relatively robust by Western standards.

Responding to the downturn whilst maintaining a long term focus

The  region’s  industries  are  leading  the  UK  in making the transition to the green economy and restructuring to take advantage of new market opportunities. The established industry and workforce are adapting and diversifying with relative ease into new markets as demonstrated by the growth in offshore wind, low carbon transport, energy efficiency and energy from non-fossil fuel feedstocks. All of these innovations are transforming traditional supply chains and creating wealth locally and nationally.

The region has strong research capabilities and leading edge expertise in the green economy located in many of its universities. The region already boasts many centres of excellence including the National Renewable Energy Centre (Narec) for advancing the development and integration of renewable energy; the Centre for Process Innovation (CPI) a national Catapult Centre for High Value Manufacturing, Durham Energy Institute at the University of Durham; Science Central – the new location for Newcastle’s   Institute   for   Research   on   Environmental   Sustainability,   providing a unique attraction for businesses to co-locate with Newcastle University, generating new economic opportunities in science and innovation and NETPark – one of the fastest growing Science Parks in the UK supporting companies that are developing technology and products in the physical sciences.

The  North  East  is  home  to  the  world’s  leading  supplier  of  electric  vehicles  – Smith Electric Vehicles; and Nissan the manufacturer of the Leaf zero emission electric vehicle.

Together, these assets are proving to be significant drivers of private investment and growth.

The structure of the public sector and its role in supporting the North East economy is changing. The Department for Business Innovation and Skills now sees the North East Yorkshire and Humber as one region, the Local Government Act will abolish One North East and Government Office North East closed in March 2011. New government   policy   such   as   ‘Unlocking   Growth   in   Cities’   is   giving   new   roles   to   core   cities including Newcastle to work effectively across their economic footprint.

We are also seeing government departments and funds placing increasing emphasise on Local Enterprise Partnerships (LEPs). The   region’s   two   LEPs,   the   North Eastern LEP and Tees Valley LEP are undertaking significant activity to strengthen and diversify their economic bases and have good prospects for growth over the long term.

The North Eastern LEP has adopted an ambitious vision to rebalance the economy, and  create  Europe’s  premier  location  for  low  carbon,  sustainable, knowledge-based private sector-led growth and jobs. A Low Carbon Enterprise Zone has been established on the North Bank of the River Tyne and around the A19 corridor to promote the manufacture, assembly and servicing of offshore wind and renewables and the development of mass production of ultra low carbon vehicles.

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