An economy driven by robust investment and exports while reducing debt will be key in rebalancing the economy in 2012 claims a new report.
The CBI today published its Vision for Rebalancing the Economy, in which it called for strong economic foundations to be put in place to kick start the economy amidst the eurozone crisis.
John Cridland, director general of the CBI, said: “2012 is going to be a hard road but if we are canny and act now to put in place solid economic foundations, we will be stronger and secure a better future for ourselves and our families.
“We need to identify how the UK will earn its living and pay its way in the years ahead and that means adjusting to change.
“The faltering recovery with family and business budgets under pressure and the on-going crisis in the eurozone are stark reminders of the need to rebalance our economy away from household and government debt.”
The CBI’s “vision for rebalancing” highlights how the unprecedented economic stability between 1993 and 2007 masked growing imbalances. The UK economy has become dominated by debt driven household and government consumption, which together accounted for 89 per cent of GDP in 2009 – more than in France, Germany or the US.
The CBI’s five roads to recovery
- Private sector to invest in infrastructure: the government estimates that £200bn of investment is needed in the next five years to upgrade the UK’s infrastructure, and has already announced a number of projects in its National Infrastructure Plan. £140bn of the total funding needs to come from the private sector, this would deliver all of the £115bn additional investment required in the base rebalancing scenario.
- Focus exports on emerging economies: Rapid growth in emerging markets will result in wealthier populations and provide better channels of access to goods and services, says the report. Earlier this year, with Ernst & Young, the CBI set out an exports strategy targetting high-growth economies. Followed correctly, the busienss lobby believes this could boost the UK economy by £20bn by 2020.
- Capitalise on e-commerce: The UK has the largest e-commerce market and second largest online advertising market in the world. This makes it well-placed to capitalise on exploding digital and mobile activity around the world, says the report.
- Tap into demographic changes: Businesses should tap into demographic changes, including growth in urban populations and rising incomes in emerging economies, says this report. This will result in “increased demand for services, particularly in healthcare, education, finance and transport.”
- Diversify towards renewable energy: As the UK’s energy trade deficit rises, while North Sea oil and gas production decline, there will be a need to find alternative new sources of energy says the CBI. Diversification towards renewable energy will both stimulate business investment and decrease energy import levels.