It is now time to rebalance economy

This is according to CBI Director-General John Cridland in his new year message.

In a new report featuring a ‘Vision for rebalancing the economy’, the CBI sets out how by acting now, the UK can move away from its dependence on debt driven household and government spending and increase business investment and net trade.

John Cridland, CBI Director-General 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.

“There are no easy answers when it comes to securing future long-term growth. The hard graft of rebalancing is the only way it can be achieved, so it’s time to stop talking about it and get on with it.

“If we fail, the UK’s debts will continue to grow and our trend growth-rate will remain low. Only through rebalancing can we return growth to long-term sustainable levels.”

The CBI’s ‘vision for rebalancing’ makes clear that 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% of GDP in 2009 – more than in France, Germany or the US.

To achieve sustainable growth in the medium to long-term, the economy has to become more driven by investment and exports, while allowing the burdens of both government and consumer debt to subside. Failing to rebalance alongside debt reduction would leave the economy struggling to grow.

The CBI believes the task of delivering rebalanced growth will be achieved most effectively by ‘swimming with the tide’ to take advantage of the long-term domestic and global changes, particularly the rise of middle-class consumers in emerging markets, spurring a greater demand for our services.

Cridland added: “To make up for the loss of public sector spending, the private sector needs to deliver £170 billion of new investment over the next five years, so it’s time to power-up and get on with rebalancing.

“The Government’s National Infrastructure Plan recognises the urgent need to make substantial investments to upgrade this country’s infrastructure, which will mainly come from the private sector, so there is a huge opportunity here for businesses.

“Companies can take advantage of the growing demand for services from the expanding middle class in emerging economies, particularly in healthcare, education, finance, transport and digital.

“Recent problems in the eurozone have made our trade performance temporarily even worse, but for the medium-term we must now target new high-growth economies such as at the BRICs and others including Indonesia, Mexico and Turkey.

“By looking beyond our traditional horizons to focus on these high-growth countries we could give our exports a £20 billion boost by 2020.

“Rebalancing has to be the right answer for a stronger UK in the years ahead. Getting the pain over as quickly as possible through determined deficit reduction also makes sense.

“2012 may well be tough, but it will mark the beginning of a more prosperous future.”