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A consumer&#39s view

Commentators tradition-ally like to end the year on an upbeat note. Even in a bad year like 2002, there is usually something to look forward to if the going has been tough. Would that there were.

As the end of the year approaches, it will be remembered by most as the year of the pension debacle – Equitable Life finally hitting the buffers, the mad rush to close final-salary pension schemes by companies seeking to save money, the widely predic-ted failure of stakeholder pensions as product providers pulled out of this market, the failure of the Government to remove the 75 age limit on postponing annuity purchase – culminating in total disillusion on the part of the general public with anything to do with pensions.

And as we look forward to 2003, will this disillusion prove to be a fleeting phenomenon, precipitated by three years of decline in equities, or a long-term trend? Sadly, it could well be the latter.

The new year will bring publication of life companies&#39 reports which will reveal just what a bad state they are in.

The FSA is keeping its fingers crossed, easing the regulatory requirements for solvency, in the hope that stockmarkets pick up fairly soon and bail out the life companies. The regulator could well live to regret this decision.

The real question is whether global stockmarkets have at last bottomed out or are we in for a 1930s-type long-term slide?

At the moment, the fear of impending war with Iraq is depressing markets but there are other long-term trends which could force us to rethink our entire approach to equity investment.

There are huge changes afoot globally which will have a massive effect on all developed economies.

First there is the downward pressure on prices brought about by the easy access to information and comparative prices on the internet. We should have listened a little more carefully when Rupert Murdoch predicted that “the internet will destroy more jobs than it creates”.

In addition, all the major economies are looking to devalue their currencies to improve their trading positions. The dollar has already fallen by 10 per cent against the euro over the past year and the pundits are predicting further falls in 2003.

It was the “beggar my neighbour” devaluations of major currencies in the 1930s which caused the collapse of world trade and devastated the global economy, pushing it into a long depression.

In addition, the opening up of China to inward investment and access to its cheap labour could eventually threaten the developed world&#39s manufacturing capability.

There are millions of Chinese workers prepared to accept wages 50 times less than labour costs in the developed world, which is the big attraction for foreign investors.

China is set to become the world&#39s manufacturing workshop. But these cheap products will destroy the rest of the world&#39s ability to price goods at a profitable level, thereby precipitating global deflation.

If companies and governments do not deal with this very real threat, then it will destroy our businesses and possibly our service industries too.

And in the immediate future? Everything is conspiring to push the UK housing market into a sharp downturn.

If the pound slides against other currencies, this will produce inflation and higher interest rates, which will stretch many recent homebuyers&#39 budgets.

Unemployment is ris-ing, although it is not yet showing up in the official statistics because many of those who are made redundant cannot sign on until their redundancy money has been exhausted.

Finally, there is a huge property overhang in new, but as yet uncompleted, developments, mostly sold as investment properties for buy-to-let landlords. Next year when these landlords take possession of their properties and cannot find tenants – and it is a tenants&#39 market already in London – they will all try to rush for the exit and prices will collapse.

No wonder the rating agencies have just put the UK banks on “stress” watch.

Sorry to be so depressing. Hopefully it won&#39t come to this, so don&#39t let it spoil your Christmas.

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