The UK economy has been burdened with a biblical "seven years of fat and seven years of lean" before and after the 2008 financial crisis, according to global advertising supremo Sir Martin Sorrell.
Sir Martin, in Birmingham to deliver the annual MacLaren Lecture at Aston University, pinpointed a ‘prevailing air of caution’ in the corporate sector nearly five years on from the autumn 2008 banking meltdown.
The globe-trotting business figure, chief executive of WPP Group which has a workforce of around 158,000 people, predicted a recovery was still up to three years away.
He identified the eurozone, the Middle East, China, the US deficit and British membership of the EU as a mixture of “grey swans” and “black swans” – or “known unknowns” and “unknown unknowns”.
Sir Martin also praised resurgent Jaguar Land Rover, whose biggest market is now China, as a ‘classic example’ of a successful approach to recovery following the economic crisis.
“There is a tremendous amount of uncertainty out there. If you look at companies, the balance sheets are very strong, much stronger than they were in September 2008,” he told the Post.
“The biggest impact post-Lehman has been in corporate behaviour. There was a time when companies were terrified that they would not be able to refinance their balance sheets.
“Today I think there is a prevailing air of caution. This is the sixth year post-Lehman. We are bumping along the bottom in the UK.
“Western Europe may not start to recover in 2014. You might start to see a recovery in 2015 to 2016. There will be a general election in the UK in 2015 and that will be mildly stimulative.
“By the time we get to 2015 and 2016 we may see a cyclical upturn in Western Europe. Growth has been muted – it is the old biblical thing – seven fat years, seven lean years. It (2008) was a very serious financial crisis and a body blow to the system.”
On the eurozone, Sir Martin said: “If you look at Great Britain, people are worried about the Eurozone, exacerbated by a black swan like Cyprus. Mario Draghi (European Central Bank President) has made a difference, not by doing things, but by saying he was going to do things, saying he would do everything he can to defend the eurozone. But here we are going into the fifth or sixth year post the financial crisis still worrying about the state of the Western European economy – is Britain going to go into a triple-dip recession?”
On the Middle East, he said: “Whilst people generally welcomed the Arab Spring, it has turned into something of an Arab Winter, with the likes of Syria, Libya, Egypt, Iran etc.”
On China, he said: “The new Chinese leadership is stronger than people give them credit for.
“All the data we see coming out of China is better. If you look at China, Russia, India and Brazil, we [WPP] are doing extremely well there – the biggest factor has been the rise of the middle classes and the lower middle classes.”
He said China remained an untapped opportunity for many businessses in the West – and praised Jaguar Land Rover’s success in Chinese export markets.
“China is our third biggest market after the US and UK and it will overtake the UK for us in time.
“Jaguar Land Rover is a very good example of high value-added manufacturing. Part of the problem is the lack of an export base – 70 per cent of our exports go to the EU.
“It is about investment, it is about technology, it is about turning your guns on the right market. It’s absolutely right that Jaguar Land Rover is a great example... it is possible for us to be as successful as Germany in high value-added manufacturing.”
On US debt levels, he said the Obama administration had to deal with the country’s 15 trillion dollars of debt. “The US has to deal with this deficit at some period of time.”
He said the recent collapses of the likes of Jessops, HMV and Blockbuster in the UK high street had exposed the vulnerable middle-market for some retailers.
“We have not seen a dramatic impact on high end retail. Where we have seen a problem is in the middle – if you do not have a strategy, you are stuck in the middle.”
He said the financial services sector needed to be nurtured along with manufacturing.
“Do not hobble the financial services sector – you have to have the right regulations to make sure that excesses do not happen again.
“We want to stimulate that sector in a responsible way, as we want to stimulate manufacturing.”
He said WPP, which has around 2,500 offices in over 100 countries, had enjoyed a record year in 2012. “We had a record year last year and the year before that. But it has been a grind, it is very difficult – it is very hard out there.”
The MacLaren Memorial Lecture on Management is an annual joint event in memory of one of the Midlands’ leading industrialists – James Edward MacLaren, who was a founding member of the Chartered Management Institute Birmingham Branch.
He was also Chairman of the Board of Governors of the Birmingham College of Technology which, in 1966, became Aston University.