Summary
In recent years the North East’s economy has shown sustained signs of improvement, although it is still less strong than the economies of most other regions in absolute terms. Whilst the impact of the current recession has yet to be fully understood. the available evidence suggests that the severity has been similar to that of the rest of the UK, and the rate of recovery may also be similar.
The business section of the state of the region has a primarily economic focus and for ease is divided into five different chapters under the following headings:
- Regional Economic Performance (including GVA)
- Business and Enterprise
- Sectors
- Innovation
- Trade and Globalisation
The North East economy – The long-term and recent history
For many years, the economy of the North East has been regarded as performing less strongly than other regional economies in England. That view has tended to be borne out by data showing that the region appears at the bottom of ‘league tables’ illustrating economic performance.
It is still the case that the North East has lower levels of GVA per head than most regions or countries in the UK. Indeed, only Wales has a lower level, according to the most recent (2008) data released by the Office for National Statistics. Similarly, the number of businesses per head of population is the lowest of all the English regions.
The North East’s level of GVA is strongly affected by the number and type of businesses in the region. Government policy for ‘growing enterprises’ centres around the emerging Industrial Activism agenda. This is aimed at removing the barriers to success, providing targeted support to industry and above all creating the conditions in which businesses can thrive.
The number of businesses in the region per 10,000 population remains low compared to all the other UK countries or regions, partly reflecting lower employment levels. Since 2003, the number of businesses in the region has increased more quickly than the national average. Whilst this is encouraging, the rate of increase will need to grow further if the region is to meet the RES target of around 20,000 additional VAT-registered businesses in the region by 2016. That may be more likely if the three-year survival rate for newly-registered businesses continues to grow.
Looked at in terms of sectoral composition, published data (mostly pre-recession) shows that the North East has a proportionally higher volume of businesses in real estate & business services, hotels & restaurants and manufacturing, compared to the UK picture. Since 2005 the region has seen an increase in the number of businesses in real estate & business services, construction and health & education – whilst the number of manufacturing businesses has remained stable. Compared to the national picture, a higher proportion of GVA is generated from manufacturing, construction and the public sector, and a lower proportion from business services and finance.
Sectoral productivity in the region, measured in terms of contribution to GVA vs proportion of businesses, shows that energy; manufacturing, health & education, public administration and financial services all make a far greater contribution to GVA relative to the size of their sectors. This can be attributed to the fact that there are fewer but bigger companies in these sectors whose activities are more capital or technology intensive.
Innovation is also an important driver of productivity – and comprises, amongst other matters, the development of new technologies that increase efficiency and the introduction of new, more valuable goods and services.
The regional spend on R&D has shown strong growth between 2005 and 2007 – this growth rate exceeds the national average as reflected in the increase of the region’s share of R&D expenditure and employment over the same period.
For more detailed information on employment in the North East, please refer to the Labour Market chapter in the People section.
The significance of the North East’s trade with companies outside of the region remains strong. Exports are a major component of economic output and goods exports contribute more to the North East economy in GVA and per jobs terms than for any other part of the UK.
These chapters highlight that, in the recent past, on several ‘business’ measures the North East performs below average in the UK but that there is evidence to suggest that performance has improved.
What is happening to our economy at the present?
There is no escaping that the region, like the rest of the UK, has been going through a recession. Due to the lag time in the production of many statistics there is very little quantitative data that we have to be able to fully analyse the impact that the recession has had on our businesses and the region’s gross value added. Although the latest GVA figures for 2008 indicate that all regions in the UK experienced a slowing in economic growth. Press reports suggest that North East businesses have been under pressure in recent months, Nissan and Northern Rock being the most high profile examples. But equally there have been reports of businesses thriving during the recession, with expansion in parts of the retail sector seeming to support this view. The Purchasing Managers Index suggests that business activity in the region is expanding, and that the expansion is on a par with London and the South East. As time goes on we will get a clearer picture of the repercussions that the contraction in the global economy has had. But as the evidence in this chapter shows – not long before we entered this recession the North East was in the strongest position for many years.
What does the future hold?
The latest North East Economy Update produced by One North East suggests that nationally the economy is showing signs of recovery and that in the North East, business activity, unemployment growth and credit conditions are all showing tentative signs of improvement.