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In the latest issue of the Deloitte Economic Review (PDF, 1382KB), our Economic Adviser, Roger Bootle turns his attention away from the gloom of our immediate economic prospects to consider what the postrecovery economy might look like. His main points are as follows:

• A recovery could be months away or it could be years away. Sooner or later, though, recover the UK economy will. And when it does, the landscape will have changed beyond recognition.
• After a decade during which consumer spending growth outpaced overall GDP growth, we expect now to see a decade where consumer spending underperforms.
• Meanwhile the government will have to cut, or at least freeze, its spending in real terms for several years in order to reduce its sky-high borrowing levels.
• The star of the show will be the external sector. Although concerns have been voiced about whether the UK’s manufacturing sector has shrunk too much, we see no reason why it cannot experience a mini-revival. Meanwhile, it is not just manufactured goods which will benefit from the drop in the pound – so will exports of services, from tourism to consultancy services.
• We think that, over the next decade, manufacturing’s share of the economy could temporarily grow from 11% to 13% or even 15%. In contrast, the financial sector’s share could shrink from 8% to more like 5%.
• The drop in the pound should help the UK to play to its traditional exporting strengths – such as the production of pharmaceuticals and aircraft. But with imports becoming less competitive, the lower level of sterling could have a wider impact, as more of the goods that the UK needs are produced domestically.
• Meanwhile, the services sector is particularly fertile ground for new or nascent services to spring up and expand, such as the provision of “green” consultancy services. And both the online and supermarket sectors could yet broaden their reach even further.
• The implications of these sectoral changes will be wide-ranging. For example, the renewed emphasis on manufacturing could boost trend productivity in the economy, given that manufacturing lends itself more easily to technical progress than the services sector. This could offset any dent to trend GDP growth caused by lower net migration.
• However, the regional implications might be smaller than is commonly thought. Regional disparities have shrunk considerably as manufacturing-dependent regions have  diversified their economies. Meanwhile, London’s reliance on the financial sector tends to be overstated – wholesale financial services account for at most 10% of its economy.
• But there remains a difficult period to get through before we see this “new world”. The economy now looks likely to contract by some 4% or so this year.
• The outlook for next year depends heavily on the success of the various policy measures. However, mounting bank losses suggest that bank lending is unlikely to rise strongly. And the likely effects of quantitative easing are highly uncertain. For now, then, we retain our view that the economy will contract again in 2010 by around 1% and still think there is a big risk of a period of persistent deflation.

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View other economic material from Roger Bootle, including his monthly economic updates.

This assessment contains general information only and is not intended to be comprehensive nor to provide professional advice.  It is not a substitute for such professional advice and should not be acted on or relied upon or used as a basis for any decision or action that may affect you or your business.  Deloitte LLP accepts no duty of care or liability for any loss occasioned to any person acting or refraining from acting as a result of any material in this assessment.