Private sector ‘well placed to withstand cuts’

COMPANIES are in good shape to withstand the squeeze from public sector spending cuts, according to a senior economist.

But Roger Bootle, economic adviser to Deloitte, has expressed doubt at the ability of the corporate sector to make up for weaknesses in the rest of the economy.

He is now predicting GDP growth to fall from around 1.5% this year to 1% next year and refused to rule out the possibility of a double-dip recession.

Mr Bootle said public sector cutbacks could offer opportunities to companies as they gain access to new areas of the economy.

“What’s more, there are a number of reasons to think that companies are in fairly good shape to deal with the adverse effects of the fiscal squeeze.  Profitability has held up well during the recession and business insolvencies have been low.  Meanwhile, the corporate sector’s balance sheet is less stretched than those of the household and public sectors.

“The recent rise in business investment is certainly encouraging. And measures of investment intentions point to further increases to come.

“However, it seems unlikely that the corporate sector will be able to offset the weakness in the rest of the economy, especially when a weak global recovery is set to prevent exports from taking full advantage of their increased competitiveness.  The economic recovery is set to remain sluggish at best.

“Accordingly, after GDP growth of around 1.5 per cent this year, I now expect growth to slow to just 1 per cent next year.  What’s more, the risk of a full blown double dip has certainly not disappeared.”