Graduating in the credit crunch

It's been hard to avoid the Credit Crunch. Everyone, from City bankers to Shetland farmers, has heard tales of the how the dreaded sub-prime mortgage market and a failing US housing market led to a global credit squeeze and near meltdown in financial markets. The US now sits on the precipice of recession, with the very real risk that it could drag down the rest of the western world. But how has all of this affected Scotland? And what implications does it have for all of us as we consider our future careers?

 

In the face of an economic slowdown Scotland has generally escaped unscathed. A Lloyds TSB Scotland report last month claimed that economic growth in Scotland was continuing at just below the long-term average. 42 per cent of the 1,900 companies polled reported increased turnover in the last quarter of 2007, with much of that coming from new customers. Meanwhile house prices in Scotland are holding steady and consumer confidence is strong. Indeed one sector that has done particularly well recently has been property rentals – fewer people taking out mortgages means fewer house purchases but more rentals. Here in Edinburgh the average rental for a one-bedroom flat shot up four per cent year-on-year with 79 per cent of flats being rented within a month of going on the market. Compared to the dizzy heights of a year ago, when record profits and a booming economy drove Scotland forward, the current climate represents a challenge. But with unemployment at just 2.6 per cent, nearly a 33-year low, the outlook for the Scottish economy as a whole remains relatively bright.

When looking more specifically at the financial sector however, things look a little different. The Centre for Public Policy for Regions recently claimed that Scotland's financial services sector was technically in recession as a result of its output dropping 3.4 per cent in the last quarter of 2007 and over 6 per cent since this time last year. Owen Kelly, of Scottish Financial Enterprise, rubbished the claims as “nonsense”, but there's little doubt that the financial sector has borne the brunt of the Credit Crunch. Shares in the Royal Bank of Scotland have dropped almost 50 per cent over the last year with HBOS suffering a similar slide. In the case of RBS that represents a drop in valuation of over £30 billion, a vast loss to its shareholders and an example of the decline in confidence in the financial sector.

But what to make of it from a student perspective? It's quite tough to predict how this will affect the graduate job market in the financial sector. After the dot-com crash of 2000 and the ensuing recession, most banks and asset managers dropped a large proportion of their graduate programmes, seeing them as an unnecessary cost in a time of economic turmoil. As a result, when the period of growth began in late 2002, these same companies now lacked the analysts they so badly required and ended up paying over the odds to bring in new talent. Banks today say they've learnt their lesson. Graduates are after all a cheap commodity – the salary of one MD is equal to that of ten or more recent graduates. So in a period of cost-cutting it makes more sense for financial institutions to move more expensive commodities—the failing traders and credit specialists—off of the balance sheet. Whether this theory has held true is yet to be shown, but there seems to have been little impact on this year's graduate intake.

Outside of finance, it's similarly hard to predict. A slowing economy usually leads to lower profits, less expansion and fewer jobs, which implies that the graduate job market should be somewhat depressed. The truth however seems to be just the opposite. The Association of Graduate Recruiters (AGR) claims that the number of graduate vacancies will increase this year by 16.4 per cent with wages increasing by an average of 2.1 per cent, and says there is a fear that some companies may not even fill all their vacancies.

The true impact of the Credit Crunch is still unknown. Jobs have been lost in the financial sector, but recruiters claim this will not affect graduate level positions. Meanwhile statistics from the AGR point to an ever-expanding graduate labour market and an increasing number of jobs at a higher average wage. It seems we shouldn't be put off by the sweeping depression which seems to have engulfed the financial media. Indeed Guy Davies, of Hogarth Davies Lloyd, an executive recruitment firm, told The Times at the end of last year that graduate recruitment is expected to continue at a pace. The message coming from all of this seems to be "have no fear, the jobs are still here" – which is of course good news for all of us.

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